NAIOP San Diego Instrumental in Overturning Linkage Fee Increase

Summer 2014

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.