Archive ▸ 2015 ▸ 2015-05-18

Committee Report CR-3

City Council, May 18, 2015

Housing Committee

The Housing Committee held a public hearing on April 30, 2015, beginning at 4:02 p.m. in Basement Conference Room, 831 Massachusetts Avenue.

The purpose of the hearing was to continue the April 22, 2015 discussion on the incentive zoning study from the Community Development Department.

Present at the hearing were Councillor E. Denise Simmons, Chair of the Committee, Vice Mayor Dennis Benzan, Councillor Marc McGovern, Councillor Nadeem Mazen, Councillor Dennis Carlone, Councillor Leland Cheung, Mayor David Maher, Richard C. Rossi, City Manager, Lisa Peterson, Deputy City Manager, Iram Farooq, Acting Assistant City Manager, Chris Cotter, Housing Director, Cassie Arnaud Housing Planner, Linda Prosnitz, Housing Planner, Jeff Roberts, Project Planner, Community Development Department (CDD), Louis DePasquale, Assistant City Manager for Fiscal Affairs, Robert P. Reardon, Director of Assessment, Lee Gianetti, Director of Communications and Community Relations, Mike Connolly, Aide to Councillor Carlone, Neal Alpert, Aide to Councillor Simmons and Paula M. Crane, Deputy City Clerk.

Also present were Cheryl-Ann Pizza-Zeoli, Cambridge Affordable Housing Trust and Alliance of Cambridge Tenants, Sarah Kennedy, Director of Government Affairs, Cambridge Chamber of Commerce, and Elaine DeRosa, Executive Director, Cambridge Economic Opportunity Committee.

Councillor Simmons gave an overview of agenda for the hearing and gave a brief opening statement. (Attachments A & B). She stated that there would be a slight change in the agenda to allow Robert Reardon and Louis DePasquale to give a brief presentation on the assessment process, classification process and the classification of Cambridge real estate. (Attachment C).

The presentation included an explanation of the Massachusetts Tax Classification Amendment which allows for taxing real and personal property taxes at different tax rates. The Classification Amendment allows for Commercial, Industrial & Personal Property to be taxed at 175% of what would be paid under a single tax rate system provided that the residential properties not pay less than the minimum residential factor established by the Department of Revenue. The City of Cambridge tax levy for FY15 is currently at the minimum residential factor of 34.5615% and $6,188,599 under the maximum amount able to be shifted to commercial, industrial and personal property. The presentation gave a historical perspective of what happened to the classification shift if residential appreciation and new property growth exceeded the amount of commercial, industrial & personal property appreciation and new growth. A projection was also provided demonstrating what would happen to the classification shift with an overall residential assessment increase of 10% and an overall commercial, industrial and personal property increase of 5% which would shift approximately $0.25 per thousand of assessed value from commercial, industrial and personal property to the residential class of property. The final slide showed actual FY15 numbers showing residential assessed values increasing 11.53% including 1.64% in new growth and commercial, industrial & personal property increasing 10.09% including 6.49% in new growth. The presentation demonstrated the impact classification could have on individual tax bills when there is a shift in the tax levy between the residential and commercial, industrial & personal property.

Councillor Carlone stated that this discussion relates to business and noted that the City is never going to get all the business it wants, but it will get a huge percentage of businesses that want to come to Cambridge. He stated that affordable housing is at the top of the list. Mr. Reardon stated that if the commercial slowed there is a cause and effect. Mr. DePasquale stated that the CPA funds are raised through the property tax. He stated that the City is paying the highest surcharge under the CPA and allocating the maximum amount towards affordable housing. Councillor Carlone stated that he feels that this amount is not enough and questioned how much of an impact makes sense. He stated that, like any priority, affordable housing is going to cost money. He stated that his children cannot afford to live in the city. He stated that his previous condominium, which has not had any improvements in 25 years, was sold for $695,000. He stated that with a budget, you must set priorities. He stated that we lower the taxes every year with undesignated funds. He stated that that available affordable housing is in crisis, but the problem is more acute in Cambridge. Mr. DePasquale stated that if the incentive zoning requirements were to slow down commercial development, the tax burden could potentially shift to the residential property. Councillor Carlone countered by stating that this is true every year. Mr. DePasquale stated that his goal is to give the City Council as much information as possible so that an informed decision can be made by the City Council. Councillor Carlone stated that every cycle has an up and a down. He commented that the overall goal and need is more easily met when times are golden than when times are not. He stated that there is wealth in the city now, and there may not be in the future, so the time to try to get more funding for affordable housing is now.

Mayor Maher stated that he appreciates the facts of the presentation. He stated he and Councillor Simmons were the only members present on the City Council when there last was an increase which negatively impacted residential tax payers. He stated that prior to 2005, the City was on a little bit of a "free ride" that was followed by a wake-up call. He stated that he believes that this was the first year that the City Council included a goal about being financially responsible. He stated that the residential taxpayers were very unhappy and noted that predictability is the biggest assurance that the City can give to the taxpayers. Mayor Maher stated that there is not one person on the City Council who is not in support of affordable housing. He noted that he is not embarrassed about the City's investment and progress as it relates to affordable housing. He stated that existing housing prices have gone through the roof, so acquiring existing housing is more difficult. He stated that Cambridge has done more to preserve and create affordable housing than most every other city in the Commonwealth. He said that Cambridge has been able to leverage the money and it has been utilized tremendously well. Mayor Maher stated that there is always room for improvement but it is important to look at Cambridge's success in an extremely difficult market. He added that the City will never be able to meet the complete need. Mayor Maher stated that he has witnessed the City's multifaceted approach to affordable housing. He stated that in decades past, funding affordable housing programs was the responsibility of the federal and state government, but that Cambridge has been fortunate in having resources and a housing community that has been willing to think outside of the box.

Councillor McGovern stated that he is in agreement with Mayor Maher that there is no one clear answer to the issue of affordable housing. He noted that the City needs to look at how we want to spend money. It is about being more careful about what we fund and what we don't. He stated that these are gut check moments. He stated that while we talk more about affordable housing, there are still individuals who are in who have opposed developments that would increase affordable housing units. Councillor McGovern noted that the City has had difficulty putting affordable housing units in certain parts of the city. He noted that he attended an Inclusionary Zoning workshop in Plymouth with many communities present. He stated that people at that workshop were in awe of what Cambridge has accomplished in the area of affordable housing. He stated that he does not want to give people the impression that Cambridge is not doing anything about this issue. He stated that it is the incumbent upon the City to do a better job getting program information out to the public, and to tout its accomplishments.

Councillor Cheung added that a few months ago in Washington, D.C., there were parties that were open to the public. He stated that when he was attending one such party, he saw Cambridge Housing Authority Executive Director Greg Russ and people from Just A Start there. He noted that people around the country are astounded at what Cambridge is doing as it relates to affordable housing. Mr. Reardon added that the most important dataset is the competing communities. He noted that when looking at other areas in neighboring cities, they do not have the same draw as Kendall Square does. He stated that people do want to develop in Cambridge, but if they can make more money in another community, they will choose that city. Councillor Cheung asked if it is possible to set a different linkage rate in different parts of the city. Councillor Simmons responded that the recommendation was that this would not be prudent, although there is no rule that this cannot be done.

Vice Mayor Benzan stated that it is important that the City does not choke development moving forward. He stated that development has been important to the City and has allowed the city to accomplish many things. He stated that he is comfortable with $12 square foot with an increase of $1 every year for three years. He added that he is comfortable with the 30,000 square foot threshold and would like this to move this matter to the full City Council for referral to the Ordinance Committee.

Councillor Mazen stated that he disagreed with prior speakers about the impact of going to the maximum rate per square foot. He stated that going to the maximum figure will not have a negative effect on development. He stated that we are talking about something less than the price of overtime for police officers. He stated that a commercial tenant is not making a decision based on the impact of this on rents. They look at cost, constraints, and then they look at zoning. He stated that we have to decide if we want extra affordable housing or if we do not.

Vice Mayor Benzan stated that it is important to think about the fact that the City must preserve a number of expiring use units when thinking about a rate increase. He noted that it must be a multifaceted approach as there will much money needed for the preservation of affordable housing.

Iram Farooq stated that the K2 study proposed $10 per square foot on commercial development. She stated that this amount would go towards transportation improvements, public space improvements and workforce development. She noted that this is currently adopted in the zoning for MIT and when the Volpe zoning comes before the City Council it will be included in the zoning requirement. It would be over and above the incentive requirement. Ms. Farooq stated that one outstanding question from the last Housing Committee hearing was the potential impact if incentive zoning is applied to projects smaller than 30,000 square feet. She stated that this threshold is the recommendation of CDD for several reasons: retaining the 30,000 square foot threshold will capture the majority of non-residential development; lowering the threshold to capture smaller projects could potentially impact the types of smaller-scale commercial and neighborhood retails which is desired by the community; and lowering the threshold could impact the regional competitive balance for smaller projects.

Councillor McGovern stated that he does not doubt the commitment of any member of the City Council to affordable housing, although there may be different ideas on how best to gain more units. He also stated that he does not buy into the idea that everyone is always going to want to flock to Cambridge. He stated that geographically, we are on top of each other in the region. He stated that he gets accused of being favorable to developers and noted that he is well aware that the developers want to make money. He stated that Boston gives a tax break to developers, and that when you have other communities saying that they will give a developer what it wants in order to lure these developers to their communities, it is concerning. He noted that what happened in Kendall Square did not happen by accident, but rather was the result of strategic planning and bold thinking. He stated that the City has to be bold, yet reasonable. He commented that he does not share the same confidence as other City Councillors that increasing the linkage rate to $24 dollars per square foot would not mean anything to businesses. He stated that the study team leader Mr. Seidman, the CDD, and the Affordable Housing Trust have all agreed and suggested an increase of $10-$12 dollars for the incentive rate. He stated that he is comfortable with the $1 increase over a three year period. He stated that it is not imperative to increase the linkage rate all at once and stated that he does not want to scare developers away from the City.

Councillor Cheung stated that it is important to think about the linkage rate as it relates to Net Zero which will come about with additional cost. He stated that we are in a competitive environment and there is a housing crisis without a lot of good options. He stated that the neighbors to Cambridge are actively soliciting Cambridge companies to their cities/towns.

Councillor Carlone stated that it is normal for companies to leave the city. He stated that $15 does sound right to him. He stated that we are still in a golden position, and when you are in a golden position, that is the right time for communities to do exciting things.

Mayor Maher stated that you can slice and dice the numbers many different ways. He recalled how Governor Patrick kicked off the campaign about the Innovation Corridor. The fact of the matter is that we are a city that was laid out in excess of 100 years ago. He stated that he can remember having discussions about innovation space and the fact that we were pricing companies out of the city. He stated that there are a number of companies that can pay the increase in linkage rate. He stated that rather increasing the number too high and then adjusting it lower, it would be good to increase now and then increase further in the future if there is the desire to do so. He noted that when Vertex left Cambridge, it sent a shockwave through the city. Mayor Maher stated that there has been a bit of an unrealistic approach by some in Cambridge thinking that we offer everything and have everything. The reason that Vertex went to Boston is because they were wooed through public financing incentives. He stated that the last corporate tax break that was given in Cambridge was to Biogen and added that the former City Manager suggested it was not prudent to offer Biogen the deal. He stated that the City should do something. Mayor Maher added that while it is easy to take aim at the business and institutional community, the business community has been good corporate citizens for the most part and they have helped make Cambridge the great city it is. He indicated that he is not looking to cripple these companies. He stated that the 30,000 square foot threshold will effectively exempt small community non-profits.

Councillor McGovern stated that the City should start a nexus study three years from now because it takes 18 months to complete.

Councillor Mazen stated that he strongly believes that developers will make it work no matter what figure is chosen. He stated that he is excited that there is a suggested zoning component in Kendall Square. Diversity of tactics is important. He stated that Councillor Cheung said 50% higher and it depends on what context you are looking at. It is 50% of linkage rate but a fraction of a percent when thinking about Boston and Cambridge. He stated that people are not leaving Cambridge because the cost of the linkage requirements. Tenants are leaving because of relaxation on rent in other cities and towns. He stated that we can continue making incentives and continue looking to see how high we want the dollar value to be and this can be independent of what others do. He stated that when one negotiates without data, it is too nebulous for him. He stated that if people are not leaving for linkage rate, they will leave because of other incentives that are offered. He does not want fear to be considered equally important in the calculus from the money that we will get from this requirement.

Vice Mayor Benzan stated that as co-chair of the Economic Development & University Relations Committee he embarked on tour of small businesses around the city. He stated that many are businesses that are struggling to pay rents. He noted that one of the biggest challenges is to get mom and pop businesses to be part of the economic boom. He stated that if the City does something unreasonable, that cost will be passed on to same mom and pop businesses that we are looking to attract. To say that we don't have data to demonstrate that these businesses will not be hurt is false. He again stated that he is in favor of an increase to $12 per square foot with a 30,000 threshold with a review beginning in the third year to be completed by the fifth year. He stated that the rate can be increased further if the economy continues to grow and at that point the City will have the option to review.

Mr. Rossi stated that when and if we have a slowdown in economy, we are not going to know for a while. The competitive edge is an issue. He stated that there is still housing pressure in Cambridge. He stated that we are still stuck in a quagmire. He stated that Cambridge's problem is not so much the dollars but the opportunities in a built-out city with specific concerns about many developments. He noted that Boston has surplus land and can offer great incentives and opportunities and that there is no inexpensive land in Cambridge. He stated that the City tells Volpe that we want a great development and neighborhood retail on the ground floor, but stated that neighborhood people cannot afford that rent. He stated that we are shut out on the land cost. He stated that it makes sense to start at a reasonable level that can be watched for 1-2 years to see how the development market handles it. He stated that he does not want Cambridge to lose its competitive edge. Mr. Rossi stated that developers don't know how to solve the middle-income housing issue, which is a growing issue for many cities. Mr. Rossi stated that Cambridge should be the strong voice of the region. He stated that he regularly hears that Cambridge is the model when it comes to the issue of inclusionary housing and its overall commitment to affordable housing. Even with this commitment and many successes, there remain major issues to address and we need to solve them in a team way, sharing the credit for what has been successful and joining together to tackle new challenges. He stated the need for creative solutions, and for a collaborative effort throughout the city.

Cheryl-Anne Pizza-Zeoli stated that the Affordable Housing Trust recommends the $12 linkage rate with a $1 increase per year for 3 years. She stated that they did not come to this figure for political reasons, but for practical ones. She stated that there haven't been local legal challenges to incentive and inclusionary zoning and that changes must be able to withstand this review, as there are have been challenges to housing ordinances in other states. She stated that any sort of delay in the process is really a dangerous thing.

John Hawkinson stated that he is puzzled at the $1 increase on top of the $12. He stated that to go from $4.30 to $12 is a 279% increase, and then from $12 to $13 is an 8% increase. He stated that if the intent is predictability on the part of developers he did not believe that the city would be getting that. He stated that they'll be able to predict it, but that developers would not care about the 8% increase very much. He stated that he is not saying that he thinks the City should spread it out over more time, but he thinks that you're probably correct that the appetite is sufficient to go to $12 instantly. He stated that it probably means if it's sufficient to go to $12 instantly, it's sufficient to go to $15 instantly. He stated that 279% and 8%, 8%, 8% sounds weird to him. He stated that he does not know if the Trust can articulate what the thinking was. He reiterated that he is puzzled.

Sarah Kennedy stated that the business community is often the first and continuing voice to ask for more housing in Cambridge. She suggested that the City Council treat commercial development as a healthy part of Cambridge's growth. She stated that she is pleased that the meeting began with an overview and projection of the tax base. She stated that she would like the City Council to consider the professional recommendations as well as the professional consultant that the city hired. She stated that the business community is glad to see this is moving forward and asked that the professional recommendation is given its due respect.

Elaine DeRosa stated that the affordable housing crisis is a complex issue. She stated that we all realize that there must be a balance and the tax base is part of the balance. She stated that this is one piece of a large puzzle. If this can move forward we can begin to talk about other things.

Councillor Mazen stated that he would be pleased to support a recommendation increasing the linkage rate to anything over $12 per square foot. He stated his belief that the City can do better. He stated that the discussion is not about special interest dollars and noted that the discussion has been collegial and productive. He said it is heartening that the City Council members can disagree about things with a respectful tone toward one another.

Councillor McGovern stated that if the rate were increased to $12 per square foot and in three years the City could consider a further increase, he would be happy to take the vote. He stated that he trusts the recommendation of the consultant, CDD, and the Affordable Housing Trust.

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 $12 per square foot, with an increase of $1 per year over the next three years and we should continue the single rate across uses and regular CPI increases

Councillor Simmons thanked all those present for their attendance and participation and stated that a City Council Roundtable discussion is scheduled for May 11, 2015.