Development Magazine Summer 2014

Advocacy

NAIOP San Diego Instrumental in Overturning Linkage Fee Increase

NAIOP San Diego achieved an important legislative victory this spring. The chapter successfully organized a coalition of more than 50 companies and business organizations, the Jobs Coalition, which led the recent “Stop the Jobs Tax” effort to overturn an ordinance adopted by the San Diego City Council. That ordinance would have drastically raised the city’s commercial housing impact fee — a linkage fee — on commercial development and redevelopment projects.

Linkage fees in San Diego are applied on a per square foot basis to developers of new commercial and industrial projects, as well as renovation projects that change a structure’s current use. The proceeds from these fees are intended to fund affordable residential housing initiatives. Localities in Massachusetts and New Jersey apply similar linkage fees to development projects.

On November 3, 2013, the San Diego City Council approved a massive increase in the city’s commercial housing impact fee. The increase ranged from 400 to 800 percent, depending on the specific type of development. It was based on the premise that commercial building projects produce low-paying jobs and thus employees who require public assistance for affordable housing. While NAIOP San Diego and its coalition partners are committed to working with the city toward a comprehensive solution that addresses housing affordability in the city, they simply could not support the council’s decision.

The editorial board for a local newspaper, U-T San Diego, framed the negative economic impact of the council’s linkage fee increase simply and clearly on December 13, 2013. Its statement outlined the decision-making process that developers use to determine where to advance commercial development or redevelopment:

“There are many factors in a developer’s decision [about] where to locate or expand. But no other city in San Diego County has this kind of fee on nonresidential projects. Everything else being equal, if a developer is deciding whether to build in San Diego … or in a suburb where there is no fee, it seems only logical that the developer might well opt for the lower cost project outside the city.”

The consequence of this “monster fee increase,” the editorial continued, would be to deter economic development within the city and in the “low-income neighborhoods that need all the economic development they can get, but where developer profit margins are already thin.”

Recognizing that the increased linkage fee was essentially a counterproductive “jobs tax” that would discourage job creation and detrimentally impact San Diego’s economic recovery, the chapter led efforts to assemble an unprecedented group of business community partners in mounting a successful and well-funded referendum campaign that quickly garnered 53,000 petition signatures in just 26 days. The petition called for a public vote on the city council’s decision to raise the linkage fee.

With the successful certification of the petition calling for a public vote on the fee increase, the San Diego City Council held a hearing on March 4, 2014, to decide whether to rescind the fee increase or place it on the ballot for public vote. Recognizing the strong advocacy efforts by NAIOP San Diego and the Jobs Coalition on the widespread negative impact of an increased linkage fee on development, businesses and the larger community, the city council voted to rescind the proposal.

In a statement issued by NAIOP San Diego following the rescission, the chapter noted that while its efforts to overturn the fee increase were successful, the struggle to adequately fund subsidized housing in the city will continue. The chapter remains committed to working toward a broad-based, stable funding source to address this societal need.

NAIOP San Diego’s leadership, in building an effective coalition and acting as the industry’s voice on this important matter, provides a model for other chapters. Legislative issues such as this one often start in a single city or community, then spread across a state or province and throughout the nation. Significant advocacy efforts such as NAIOP San Diego’s protect the industry in individual markets and, by extension, NAIOP members and commercial real estate across North America.

Related Links

Development Mag App

View the Digital Edition or Download the App 

Access the interactive digital edition of Development magazine or download the app from Apple, Amazon and Google Play.

Like-Kind Exchanges 

A like-kind exchange or “1031 exchange” refers to section 1031 of the U.S. Internal Revenue Code. This section of the U.S. Internal Revenue Code provides that capital gains taxes can be deferred in cases of exchanges of property held for productive use in a trade or business or for investment, provided the properties exchanged are comparable (“of like kind”). When the taxpayer ultimately sells the asset, the tax is paid. In commercial real estate, the provision encourages transactions because it enables investors to overcome the “lock-in” effect of tax rules, allowing them to remain invested in real estate while shifting resources to more productive properties or changing geographic locations.

From the Archives: Advocacy Articles from the Previous Issue

headshot of Gary Miller

A Congressional Perspective: Representative Gary G. Miller 

Republican Rep. Gary G. Miller represents California’s 31st Congressional District in the U.S. House of Representatives. He is vice chairman of the Financial Services Committee and a senior member of the Transportation and Infrastructure Committee. Development magazine recently spoke with Miller about various policies and politics that have the potential to impact the commercial real estate industry in 2014 and beyond.

Selected For You

New Markets Tax Credit Program 

The New Markets Tax Credit (NMTC) Program was established in 2000 as part of the Community Renewal Tax Relief Act of 2000 and aims to foster revitalization efforts in low-income and impoverished communities across the United States. The NMTC Program provides tax credit incentives to investors for equity investments in a certified Community Development Entity (CDE) whose primary mission is to invest in low-income communities. The credit equals 39 percent of the investment paid out over seven years: 5 percent each year for three years; and 6 percent in the final four years. The NMTC program has been used in conjunction with local efforts to spearhead redevelopment efforts, including commercial real estate development, in many areas.

Finance image

Cost Segregation Is Just the Beginning 

New regulations further expand the utility of engineering-based tax strategies.