Committee Report CR-3
The purpose of the hearing was to further discuss the petition to amend the incentive zoning requirements that is currently under consideration by the City Council.
Present at the hearing were Councillor E. Denise Simmons, Chair of the Committee, Councillor Nadeem Mazen, Councillor Marc McGovern, Vice Mayor Dennis Benzan, Councillor Craig Kelley, Iram Farooq, Assistant City Manager for Community Development, Chris Cotter, Housing Director, Jeff Roberts, Land Use and Zoning Planner, Linda Prosnitz, Housing Project Planner, Community Development Department (CDD), Nancy Glowa, City Solicitor, Vali Buland, First Assistant City Solicitor, Lee Gianetti, Director of Communications and Community Relations, Neal Alpert, Aide to Councillor Simmons, Dan Schwartz, Aide to Councillor Mazen, Christian Schlachte, Aide to Councillor Cheung, and Paula M. Crane, Deputy City Clerk.
Also present were Sarah Kennedy, Chamber of Commerce, Peter Daly, HRI, Elaine DeRosa, CEOC, Nancy Ryan, Cheryl-Ann Pizza-Zeoli, ACT and member of the Affordable Housing Trust, Sarah Gallop, Co-Director, Office of Government and Community Relations, MIT, Lee Farris, John Hawkinson, Tom Lucey, Director of Community Relations, Harvard University, Denise Jillson, Executive Director, Harvard Square Business Association, and Jean Hannon.
Councillor Simmons gave an overview of the agenda for the hearing (Attachment A) and stated that she called this hearing to discuss the final language for the recommendations on raising the incentive zoning rate, which the Community Development Department is going to walk the committee members through. She stated that the City is on the precipice of voting these recommendations into ordination, which will translate into millions of additional dollars for the creation and preservation of affordable units in the community. She stated that this will be a huge boost for the city and for those trying to stay in the city. She stated that the City Council could have taken its final vote of the recommendations at the City Council meeting of September 21, 2015, but she wanted to be certain that the Councillors have a clear understanding of the language before doing so. She stated that she would like to give CDD the opportunity to tease out the language and explain any changes that have been made.
Iram Farooq stated that the proposed changes to the zoning text before the committee (Attachment B) reflect some issues raised at the Ordinance Committee hearing and the Planning Board recommendations. She introduced Jeff Roberts, Zoning Planner in the Community Development Department, to walk the committee through the changes.
Jeff Roberts stated that on the first page, there are changes that reflect questions about the applicability of the requirement of rehab projects. There was some discussion around rehabilitation and the language suggested clarifies that new development would include new construction and rehab that had the effect of taking a building made for one type of use and converting it for a different type of use, i.e., converting a building that originally housed a factory into one that is now going to be used for office or lab space. The CDD wanted to be cautious about not including projects that involve upgrades to a building that would be maintaining the same type of use, as the City would not want to discourage that kind of upkeep and renovation.
He said that some other changes suggested are on page 4 which make specific the Consumer Price Index (CPI) series to be used and specify that the adjustments in the rate would only escalate based on CPI, and the rate would not decrease if the CPI were to decrease over the course of a year.
Mr. Roberts stated that some additional language on page 3 simply clarifies the types of college and university uses, and those types would not include dormitories but would include auditoriums, athletic facilities, laboratories, administrative and faculty offices and other such uses. This is not a substantive change but a question was raised at a prior hearing.
Councillor Kelley stated that he does not have questions about this revised proposal, and that he likes the way it reads. He said his main sticking point is what rate the City Council ultimately votes on raising the linkage fee to. He stated that from a safety standpoint, the City obviously does not want to stretch too far to the maximum number. He stated that he understands that we don't want to increase the number too much, so as not to invite legal challenges, but at the same time, this is a hot real estate market and asking for more money is not unreasonable. He stated that he wants to raise the rate beyond $12 per square foot, absent something in writing explaining why doing so would be unwise.
Councillor Mazen asked whether raising the linkage rate to $24.30, the maximum rate reached in the Nexus Study, would be beyond legal reproach. City Solicitor Nancy Glowa stated that the housing contribution range that was suggested by the Nexus Study as constitutionally meeting muster falls between $10 and $24.30. She said that this means the Nexus Study found there is an essential nexus between development in the city and the impact, as well as a rough proportionality between the condition and development impact. That is a legal standard that has been set forth in a number of Supreme Court cases. When CDD hired a consultant and they make a recommendation that this range is supported, the question of where the City Council chooses to fall on that range is a question of policy. She said that the common sense implications are that the higher you go, someone might be more likely to choose to challenge the ordinance. Thus far, the ordinance has not been challenged. The question is what is acceptable to the development community without wanting to challenge the rate. She said that the analysis is beyond reproach, but the question of whether someone might challenge this condition or the rate of $24.30 is not something that she can predict.
Councillor Mazen stated that it is question of precepts of what the study is intended to do. He stated $24.30 would be required to meet the technical need. It is implicit in being named by the study and is reasonably defensible. Ms. Glowa stated that what is unknown is that the validity of the consultant's study has not been tested judicially. Assuming the methodology is supportable by the courts, she believes the range would be upheld.
Councillor Mazen stated that he is assuming that this is an accurate study. He thinks that any costs that we apply as a legal matter to developers will be passed on to the lessors, who will bear that burden happily. He stated that the amount that the initial fee amortized over thirty years is tantamount to pennies per month per square foot. He said that setting the linkage rate at $12 would turn this into a missed opportunity at the very least, and a grave misunderstanding of market economics at most, and that the City Council should raise this to the maximum rate.
Councillor McGovern stated that the legal piece is not the most important part of this to him. He stated that it is about the impact. Other communities actively pursue businesses in Cambridge and offer incentives to come to their city. It is a question of comfort level. He stated that the Affordable Housing Trust has concerns about the $24.30 rate as well. He stated that if we are going to go to $12 and in 3 years phase in to $15, plus CPI increases, and that another Nexus Study is mandated within that time frame and this can all be done in a responsible way, then he is comfortable with that. He stated that the idea the City Council could raise the rate to $24 and then later on lower the rate if it had negative consequences is silly thinking. He said that the City Council would be given a difficult time trying to lower the linkage rates in that scenario, and that some people would likely just accuse them of trying to give breaks to the developers. He said that he would rather do this in a thoughtful, responsible way, which will allow us all to feel confident and safe in our decisions. He noted that this revenue is only one avenue for addressing the affordable housing challenge, and much more work needs to be done. Raising the linkage rate alone will not solve the problem. He said that we should move forward with what is a bold, responsible position. The increase is significant and people are confident that it is a safe increase. Councillor McGovern then turned his attention to page one of the CDD handout and asked about the concerns regarding continuing the annual $1 increase beyond the third year mark.
Chris Cotter stated that looking at a continuing annual increase, some concerns are that a continuing increase could result in development projects moving ahead more quickly, to capture the lower rates afforded by doing so. This could lead to more rapid development all at once. Councillor McGovern said that he was not entirely sold on this concern. He also said that how one views affordable housing would probably color how one views the prospect of increasing the incentive contributions, and how one views the development community. One could view the developers as the bad guys, or one could view them as collaborators. He said that it is interesting how some people seem to cherry pick the facts out of the consultants' Nexus Study that they already agree with, and discard other parts that they don't already agree with. Councillor McGovern said that ultimately, he would defer to the information provided by the experts.
Councillor Mazen stated that it is not that the report is good on the one hand and not good on the other. He said that the report is good on the data, but that the rest is just speculation. He stated that he does not want to know the report maker's personal preference, or even the preferences of the Affordable Housing Trust members on an appropriate rate. He said that those who are afraid to set a rate above $12 are relying upon a demonstrably poor understanding of how the real estate market works. He stated the developer does not absorb this type of cost, and they are not legally required to do so. Because this is being passed on to the end user, it will not register a difference to the developer, and it will not make any difference in terms of the amount of development. He said the fact that this body is even entertaining the idea of going below the maximum out of fear that it will impede development is totally counter to everything we know. He said the committee should make policy decisions based on math and on what they'd like to see. He said that we should not pretend just because a group of people want a low and conservative number that this number is somehow backed up by the data.
Councillor McGovern stated that this is not a fair assessment, and that this is not being done on a whim. He stated that there is a lot of thought that went into this number. He questioned the point of conducting studies and engaging experts if City Councillors simply know better? He stated that he is not willing to take the risk in going to $24.30.
Councillor Mazen stated that this is a mathematical discussion. He stated this is a discussion about only the math. He stated that he does not think there is a choice but to go to $24.30.
Vice Mayor Benzan stated that he has had the opportunity to hear about the linkage fee for quite some time. Oftentimes, we rely on experts to talk about increasing the fee. He said he is confident in this recommendation. He stated that since 2010, the city attempted to pursue 55 properties and were only able to purchase three, and this was a sobering number. The linkage fee is only one avenue to pursue affordable housing. He stated that there has been much speculation on the impact. He said that this committee has in front of it a sound recommendation, a recommendation which is three times more than the current linkage rate. He stated that progress is being made, and we need to move forward and look at other ways to solve the affordable housing crisis.
Iram Farooq stated that, in regards to the notion of the math vs. the judgment, she clarified that the math is based upon judgment. It is built upon market assumptions looking at the history of development in the city and projecting outwards. There is judgment at both levels. The trend of growth in the city continues along a trajectory. She stated that the likelihood is that the trend may flatten, which means the amount of money that is raised may not increase in the proportion that one may want. She said that the City could theoretically double the linkage fee, from $12 to $24, but we would not necessarily get double the money because this might also mean that fewer projects are developed, bringing in roughly the same amount of linkage money, regardless. She said this this is important to keep in mind.
Ms. Farooq stated that in terms of the dollar a year increase, she suspects that most in the development community are not thinking of this as a $12 rate with a $1 year increase, but rather are thinking of this as a $15 linkage with a three year phase-in period. She said that as long as you have predictability, you can behave in rational ways, and that is one of the items that the CDD has kept in mind throughout this process.
Ms. Farooq stated that the housing needs and concerns are not just contained within Cambridge, they are regional. If it turns out that it is expensive to build here and we are not getting the amount of linkage money because commercial development moves elsewhere, there would still be an impact on the residential side as well. She stated that the notion of costs being passed onto lessors is true, but that has implications as well, and the more that market starts to require a higher amount of money to commercial development, it hurts start-up companies who are less likely to be able to pay higher rents.
Councillor Mazen stated that, regarding the Nexus Study, he understands that certain assumptions are necessary in order to create the study. He stated that the assumptions and the study are sound. The window that appears in the study's editorial is not as sound as the first two stages. That editorial is not appropriate or borne out by the data. He does not think that the change in price due to a $24.30 linkage fee will have any market effect. The fluctuation in the cost of steel, and other elements that are out of our control, will have a much greater effect. Changes projected in Cambridge will have to do with regional building and competition. The $12 vs $24.30 distinction has nothing to do with the demand that we will see in future years. He stated that he does not know why this body would look at $50 million over the coming decade and say that this is not the answer. He asked why we are talking about throwing away money. He stated that he does not want to throw money away, and he is truly baffled as to why others do not share this view.
Councillor Kelley stated that it is important to find the right dollar amount. He stated that he understands that the City Solicitor suggested that, at some point, a certain add-on becomes more targetable from a developer's standpoint. He suggested increasing the rate, but not going too high. He said that he agrees that this is not the pot of money that will solve all of the city's problems, but that nonetheless, he would like it to be higher.
Ms. Glowa stated that she is not predicting what the tipping point would be or what the policy considerations are. She stated that she defers to CDD on these issues. She stated that the conclusion in the Nexus Study is that the impacts of development would support a contribution of between $10 and $24. She cannot predict whether someone would challenge this or not. She stated that if the rate is set high enough, perhaps that may be an incentive for someone to challenge it in court. She said that she is unsure what a court would do in terms of the constitutional framework, and in how that might impact development as the case was being deliberated. She said that there is not a specific number that is more defensible or not.
Councillor Kelley stated we have a Nexus Study that says we are justified in setting a rate of $24.30. That may or may not be true in the eyes of the law. Someone could look at the facts, studies, and assumptions and out it goes to court. He stated that finding the right number is the challenge, finding a number that brings in revenue and doesn't scare off developers. He said that he would like the rate set higher, and he knows there are differing views on this. He said that we may have different ideas of the risks and results.
Councillor McGovern stated that no one can know anything for certain. He asked if the city went to $15 off the bat and abandoned the phase-in, and then had a study five years from now, would that be a possible compromise to which the City Council could agree.
Vice Mayor Benzan asked what kind of revenue the City would expect to see if we set the linkage fees to $12. Chris Cotter stated that the study is based on projections. One of the things they looked at when reviewing the recommendation was setting a range that would not change the level of development. He said that the Affordable Housing Trust is certainly interested in maximizing the amount of financial support they receive. There is no way to accurately predict development. Vice Mayor Benzan stated that he would like to see a forecast of what these numbers will generate five years in the future. He stated that to compare this to the cost of steel is different because he has not heard that from developers.
Chris Cotter stated that the $50 million number is looking at the amount of development projected in the study over the next 10 years. At the $12 rate, he believes it would yield $55 million in incentive contributions. The question is: at what rate does the rate start to impact development and reduce the amount of funds received by the Trust. He added that, regarding the improvement in this resource as a way to fund Affordable Housing Trust efforts, another big piece is the expansion of the applicability, which will be about four-fold. There will be significant impact on the amount of funds raised from that change in the ordinance.
Vice Mayor Benzan asked if the City has looked at the scenario of raising the rate to $24, and would this mean that it would be $34 within the Mixed Use District? Chris Cotter stated yes, this would be true and it has been considered. Iram Farooq stated that it would apply to the Mixed Use District and Volpe in Kendall Square. She stated that the City is also concerned about obtaining support for transit and green buildings, and while it is presently difficult, if we put all our eggs in one basket and set the fees too high, it will be increasingly difficult to go to developers to ask for them to pitch in even more money for these other concerns.
Councillor Simmons stated Ms. Farooq hit upon an important point, and that it is important to look at the overall impact and look at the context this linkage fee discussion is part of. She said that these recommendations will remove the special permit trigger, will expand the scope of applicability, will eliminate the 2,500 sq. foot exemption, and will initiate an automatic study in three years. Councillor Simmons stated that we have to put it all in context. Coming immediately down the line, the City Council will be looking at Inclusionary Zoning, condo conversion laws, the tax rate, and increasing the levy limit, and the linkage fee discussion is a small aspect of the conversation. You have to look at this in context.
Peter Daly, Executive Director of Homeowner's Rehab, Inc., thanked the committee for their efforts. He stated that he thinks that we are paying a price for having not engaged in this process for such a long time. He said that he is happy that this is mandated to start again within three years, which will allow adjustments to be quickly made if that is found to be necessary.
Cheryl-Ann Pizza-Zeoli mentioned that Councillor Kelley had hit upon something when he recently suggested that some people may have ideological reasons for bringing a legal challenge. She stated that she appreciates the committee's work and she believes that this committee and the CDD have come up with meaningful changes to the ordinance. She stated that we need to continue to move forward.
Lee Farris thanked the committee and the City staff. She referred to an earlier comment that perhaps raising the linkage rate to $24 might cause a reduction in construction, leading to a net loss in linkage. She then said her question is that if the Nexus Study suggested that $24.30 would be needed to support housing in the coming years, and the City Council only raises the rate to $12, then where is the other half of the money needed to support this new housing coming from? She asked what the City's plan is to make up the difference. She asked if that then means that the City would then have to use other income streams. She also asked the committee to consider that - referring to the Vice Mayor's earlier comments - perhaps if the linkage fee were raised to $24, rather than being able to buy those three buildings of affordable housing out of 55, the City would have had the funds to purchase six or more buildings. Ms. Farris also stated that she thinks a study of every three years needs to remain a requirement. She would like the extra dollar to continue until the City Council makes its decision. She stated that regarding middle income, she understands that the Affordable Housing Trust would like flexibility in spending, but she is concerned that the need for affordable housing money is the greatest priority. Since there is not another clear source of funds for middle income, a great deal of this money could be put to this specific use. She said that she would like a guideline or parameter that is in the discussion.
Elaine DeRosa, Executive Director of CEOC, stated that no one is necessarily afraid of getting sued, but when it takes five years to build a property, there is a huge escalation. She stated that if this proposal can fly at $12, and it will be $15 before we blink, bringing in the money and we won't price ourselves out of the market, then we should move forward on this. She stated that we need the money, we need the inventory, and we must stay out of court. She stated that going forward, once passed the Affordable Housing Trust will be reviewing this, and the Affordable Housing Trust will be reporting about the impact of what the ordinance will do as well as what can be the impact of balancing low, moderate and middle income to the City Council on a regular basis. She stated that parameters are very important for future studies.
Jeanne Hannon congratulated the policy makers who are taking on this issue. She stated that it has to be taken in context. It is not a silver bullet, but it is an important piece. She stated that it is a whole pattern that needs to be changed.
John Hawkinson stated that it would be wise to ask the City Solicitor what would happen if this ordinance were challenged, because when a building development is challenged, it stops the permit, but when an ordinance is challenged it does not necessarily stop development while it is considered by the courts. He also stated that if people are going to challenge the fee anyway, for ideological reasons, then the City Council should just go ahead and raise it to the maximum rate since the legal challenge would be anticipated either way. He stated that if prior comments that there are ideological reasons for people to bring a challenge cuts both ways. He stated that there are people who get up in the morning looking for venues to file lawsuits which suggests that a challenge may be forthcoming regardless and the City might as well go to the highest defensible rate. He stated that if we have to look at fees in the context of other numbers, it is easy for the $10 sq. foot fee in Kendall Square but much harder to understand in the context of the tax rate.
Sarah Gallop, Co-Director, MIT Government and Community Relations, stated that it is important for the City Council to ensure a level playing field across the region. She stated that the subject of affordable housing is a complex matter than can be addressed through a variety of mechanisms. Good information and analysis, good public process and a willingness to compromise are elements that are very important and necessary to successfully addressing this.
Tom Lucey from Harvard University stated that Harvard views itself as a partner with the City Council in the affordable housing realm. He stated that together, they have worked to preserve more than 600 affordable housing units across the city. He urged the City Council to take a strong look at the expertise that has been brought to the table. He asked the committee to consider the context of the other regulatory environments being discussed in the city. Harvard is working hard on net zero, transportation, and resiliency. He added that he would like consideration of the economy, and that the local economy must be looked upon as an ecosystem. When talking about rents, as ideas come about start-ups pop up, and we need to look at the impact of what the economy will look like. We must think about what economy is created, and how raising the linkage rates can impact the ability of small start-up companies to take root in Cambridge.
Councillor McGovern stated that, in regards to the timeline for the nexus studies in the future, the recommendation originally called for a new study every five years. He said that he is aware that there must be enough time after a rate is set for the City to see the impact of that change. He stated that the consultant felt if the study was done within two years, there would not be enough data to fully determine the impact. That is why they compromised on mandating a new study every three years. In regards to the projected $50 million that we would allegedly be leaving on the table, that is over a 10 year period, which would average out to $5 million per year. For $5 million per year, do we risk legal challenges, loss of development, and unpredictability? He said that it is not prudent to make decisions by being emotional, and that we must be rational and responsible. He stated that he looks forward to hearing from the full City Council regarding their ideas. He again asked if it is better to go to $15 immediately, or to $12 with a dollar a year increase.
Councillor Simmons stated that she wants a vote on this matter to take place on Monday, September 28. The legislation may not be perfect, and we may not all get everything that we want. But she stressed that we are building reliability and predictability, which is important. She also stated that the Housing Committee seems to be broadly ok with the language brought forward by the CDD, and the only real bone of contention is around the rate. She stated that the committee previously agreed on the $12 rate with the dollar per year increase to $15, plus CPI, and this will likely be the rate that is voted on by the full Council.
Councillor Kelley asked the City Solicitor that in the event the City were challenged, is it possible to charge the existing linkage fee without the proposed increases. Ms. Glowa stated that she does not believe so. In order to keep the ordinance from being effective while challenged in a lawsuit, a party would need to seek an injunction or a stay. She stated that it would not slow down the effectiveness. She does not believe there will be a retroactive impact. She suspected that the fees would go into effect and the City would litigate. She stated that she could not state if this would have an impact on development, and that she would like to do more research.
Councillor Kelley stated that we can go higher than $12. He stated that people go to court for things that are a lot less consequential than this. He stated that we must approach this trying to get the best we can for the city. He does not see this as being a development number.
Vice Mayor Benzan stated that we talk a lot about the development of things, but not the development of people. He stated that large numbers of people leave the city every day. He stated that young people want to stay in Cambridge, but cannot because they don't qualify for programs and they cannot get jobs in many of the companies that are located here. He asked how to get developers to adopt young people, to ensure they are given the skills to get into the local economy in a meaningful way.
Councillor Simmons stated that she feels very confident that for the most part, the Housing Committee and others are comfortable with the language submitted by the CDD. She stated that the City Council will move on Monday to adopt the recommendations and vote. She does not believe the rate will be more than $12. She believes this will stay the same, as it has been fully vetted and people generally seem willing to accept this compromise.
Vice Mayor Benzan stated that he will not be at Monday evening's meeting. He said that he very much wants to see this move forward. He does not want to delay this any longer. He suggested that we agree to $12 and revisit in 1-2 years if necessary.
Councillor Kelley stated that he would prefer setting the rate higher, to $15 or $16. But he also said that he does not want to see the number go up and not reach the six votes it needs to pass. He would like something passed and he would not like to see it die.
Councillor Simmons made a motion to forward the CDD's proposed amendments to the full City Council with a favorable recommendation.