Discussion held on potential linkage fee for commercial development

While discussing the Interim Rent Control Ordinance and the current citywide rent control policy in December 2019, the idea of a linkage fee — which would be applied to new non-residential (“Commercial”) development on a per square foot basis as a means to fund affordable housing — was proposed as a way to offset the sudden arrival of Apple, Amazon, and other companies into the Culver City community.

The city hired Economic and Planning Systems (EPS), a land economics consulting firm, to conduct a linkage fee study throughout most of 2020. 

This study, which was presented at the March 15 city council meeting, also involved outreach to the community via stakeholder interviews and Economic Development Subcommittee discussions in September and October of 2020, a virtual town hall in November 2020, and a presentation to the Financial Advisory Committee in January of this year.

Under the Mitigation Fee Act (AB 3149), a connection has to be shown between the increase in commercial development and the need for public housing, which is determined by four major factors related to lower-income workers.

These are:

  • Types of new jobs generated
  • Proportion of new jobs likely to earn lower-income wages
  • Estimated new households formed by lower-income workers
  • Estimated cost of developing housing affordable to lower-income workers

In Los Angeles County, there are three different tiers of lower level income. “Low income” is defined as less than 80% of the median family income, and sits at $46,400 for one person, $53,000 for a household of two, $59,650 for three, $66,250 for four, and $71,550 for five.

The term “very low income” is representative of those below 50% median family income, which sets that threshold at $29,000 for a house of one, $33,150 for two, $37,300 for three, $41,400 for four, and $44,750 for five.

Finally, “extremely low income” refers to those under 30% of the median family income. This translates to $17,400 for one, $19,900 for two, $22,400 for three, $24,850 for four, and $26,850 for five in a house.

In order to make the determination that the linkage fee is necessary, the first step was to determine the subsidy required to cover the difference between the development cost of a new unit with the value of the property being rented at low income tiers, which is 30% of the lower income classifications described above.

With a general development cost of $580,000, low income housing would require a subsidy of approximately $165,000 per unit, and that number jumps to about $370,000 when considering very low income housing.

To determine the maximum allowable fee, the four factors above were quantified for different fields of development, and EPS came up with the following maximums:

  • Restaurants: $249 per square foot
  • Office Space: $171 per square foot
  • Lodging: $148 per square foot
  • Assisted Living: $141 per square foot
  • Warehouse/Industrial/Manufacturing: $66 per square foot
  • Media Studio and R&D Flex: $30 per square foot

These numbers are generally higher than what cities charge, especially when only considering the four in Los Angeles County that currently charge the fee. Linkage fees for all commercial uses in Los Angeles County range from $3 to $12.60 per square foot, with office space in Santa Monica boasting the highest fee in the county.

When looking up north, the fee gets a bit more substantial. While some municipalities in the Bay Area keep their linkage fee down, others with companies similar to Culver City have fees as high as $36.53 per square foot for office space. Additionally, Bay Area and Silicon Valley jurisdictions tend to set a different fee based on use, while Santa Monica is the only LA County municipality with a linkage fee that changes based on use.

Of course, a concern that comes with tagging on fees to development is the potential to scare developers away. EPS also calculated the total impact fees — the additional costs on a project that impact its feasibility — at about 2.5% the total project value, which EPS said gives the city room to implement a linkage fee without overburdening developers.

The initial recommendation from EPS was simple: a $5 per square foot linkage fee on all commercial uses, with exemptions for projects under 10,000 square feet, and for those that have already completed the city’s Preliminary Project Review.

EPS Managing Principal Darrin Smith explained that the low level fee was selected because it would not be a burden on development, yet would still make Culver City a leader in the area in this type of fee.

Administratively, EPS recommended that an annual escalation of the fee be established, with a review of the fee as a whole every five years.

Initially, councilmember Goran Eriksson was apprehensive, citing worries about a competitive development market and the fact that major factors like Measure RE and the mobility initiative in the city would affect the market. He noted that Inglewood has seen a great deal of development recently, even potentially taken some away from Culver City.

Additionally, the timing of such a fee during a pandemic was a concern, one which EPS acknowledged was also echoed by stakeholders in community meetings.

“Of course, there were many who with the idea of basically anything that can be done to promote affordable housing,” Smith explained. 

“But business interests tend to be on the more conservative side anyway, and they expressed many of the same concerns that Eriksson is expressing.”

Generally, the concerns from council members hovered over a similar topic: the fear of scaring developers with additional costs.

Councilmember Albert Vera, who owns his own small business in Sorrento’s Market, echoed these fears, but said he is “on board with most of what was said.”

“When we really get into it, I have some comments and some additions I would like to see.”

Vice Mayor Daniel Lee initially expressed some concerns regarding how pertinent the general comparisons to Westside and Silicon Valley company, arguing that Culver City falls more in between the two than in either category in particular.

Lee also partially agreed with Eriksson’s comments regarding Inglewood, but argues that they face a similar situation Culver City does in terms of housing. He also argued against the more simplistic model proposed by EPS, proposing that the dynamic nature of business in the city would call for a tiered structure based on use.

Following public comment, Eriksson still expressed his apprehension towards scaring developers from the city, proposing a $2 per square foot fee, even across all uses.

Councilmember Yasmin Imani-McMorrin felt comfortable with the $5 fee, saying she “didn’t see a world where people don’t want to invest in our community.”

However, she did call on the suggestion made in publc comment to reduce the time before reevaluation.

McMorrin was open to starting with an even rate as Eriksson desired, but personally hoped to see some variAnce.

Vera then made some additional comments, siding with Eriksson on the idea that this fee would harm the city’s competitive standing for developments and force business. He eventually settled on $4.

Vera also agreed with the idea that the fee should be equal across the board.

Lee’s drew the conversation back to the original intent of the linkage fee discussed in 2019: to address the large level of commercial development without harming residential development.

He argues that unless the number is significant, that goal would not be achieved. Lee stated that he believed that $5 was too low, and he would not vote for a tax under $5.

Mayor Fisch opened his comments by explaining his own evolving feelings on the development in Culver City as a whole, saying that he feels that many people incorrectly believe that these types of policies are looking to 

He also argued for the flat fee across all uses, pointing out that the city’s land use rules already complicate development a great deal, and this fee would only encourage more straddling between different uses.

After discussing more specifics including implementation timing, staff was directed to come back with a draft ordinance at a future council meeting.