City of East Palo Alto

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1 City of East Palo Alto CITY COUNCIL AGENDA TUESDAY, JULY 15, :30 P.M. EPA Government Center 2415 University Ave - First Floor - City Council Chamber Notice of Availability of Public Records: All public records relating to an open session item which are not exempt from disclosure pursuant to the Public Records Act, that are distributed to the majority of the City Council will be available for public inspection at the City Clerk s Office, 2415 University Avenue, East Palo Alto, Ca at the same time that the public records are distributed or made available to the City Council. Such documents may also be available on the East Palo Alto website subject to staff s ability to post the documents prior to the meeting. Information may be obtained by calling (650) Community Forum and Special presentations: Members of the audience may address the City Council on any agenda item or on any item of interest to the public within the Council's purview, before or during the Council's consideration of the item. If you wish to address the City Council, please fill out a Speaker Sheet and give it to the City Clerk. When your name is called, step to the podium and address the City Council. Speakers are limited to two minutes each, and presentations are limited to 10 minutes. The Mayor has the discretion to lengthen or shorten the allotted times. East Palo Alto City Council Chambers is ADA compliant. Requests for disability related modifications or accommodations, aids or services may be made by a person with a disability to the City Clerk's office no less than 72 hours prior to the meeting as required by Section 202 of the Americans with Disabilities Act of 1990 and the federal rules and regulations adopted in implementation thereof. REGULAR CITY COUNCIL MEETING 7:30 p.m. 1. CALL TO ORDER AND ROLL CALL 2. APPROVAL OF THE AGENDA 3. PUBLIC COMMENT REGARDING CONSENT CALENDAR ITEMS Notice to the public: Members of the public wishing to address the Council on Consent Calendar Items are requested to submit a completed speaker sheet to the City Clerk. Each speaker is limited to two minutes. The Mayor has the discretion to lengthen or shorten allotted times. There will be no separate discussion of Consent Calendar items as they are considered to be routine by the City Council and will be adopted by one motion. If a member of the City Council, staff, or public requests discussion on a particular item, that item may be removed from the Consent Calendar and considered separately.

2 4. APPROVAL OF CONSENT CALENDAR City Council Ordinances, Resolutions/Informational Reports/Approval of Actions and Motions Recommendation: That the City Council Adopt the Consent Calendar as indicated below. A. Claims - None B. Minutes - None C. By motion, adopt the Affordable Housing Program Ordinance. (John Doughty, Community and Economic Development Director) D. Adopt a resolution authorizing the Bay Area Water Supply and Conservation Agency to initiate, defend, and settle arbitration related to the water supply agreement with the City and County of San Francisco. (John Doughty, Community and Economic Development Director) E. Adopt a resolution approving the Plans and Specifications for Runnymede Storm Drain Phase II & O Connor Pump Station Outfall Project and authorizing advertisement of the project for bid, authorizing the City Manager to analyze and accept the bids received, and award a construction contract to the lowest responsive and responsible bidder, and establishing a change order contingency of up to 10% of the bid amount, not-to-exceed a total budget of $1,262,000. (John Doughty, Community and Economic Development Director) F. Adopt a resolution: 1. Approving the Plans and Specifications for Cooley Landing Park, Phase III, Education Center and authorizing advertisement of the project for bid; and, 2. Authorizing the City Manager to accept and analyze the bids received, award a construction contract to the lowest responsive and responsible bidder and establish a change order contingency of up to 10% of the bid amount, for a total project budget not-to-exceed $2,650,000. (John Doughty, Community and Economic Development Director) G. By motion approve the 2014 Legislative Recess to begin August 1, 2014 through August 31, 2014 and resume business with a regular scheduled Council meeting on September 2, (No Written Material) (Nora Pimentel, Deputy City Clerk) H. Proclamations 1. Recognizing Quattro as a award recipient of As Fresh as it Gets 2. Declaring Saturday, July 26, 2014 Collard Greens Cultural Festival Day 3. Recognizing National Night Out I. Written Communications: None 2

3 5. SPECIAL PRESENTATIONS (Government Code (b)): Presentations are limited to 10 minutes. The Mayor has the discretion to lengthen or shorten the allotted times. A. East Palo Alto Boxing Club Update (Lee Katzman, Secretary and Johnnie C. Gray, President) 6. ORAL REPORTS A. Report Out of Special Meeting Closed Session B. Staff Reports C. City Council Reports 7. COMMUNITY FORUM Notice to the public: Anyone wishing to address the Council on any matter for which another opportunity to speak is not provided on the Agenda, and which is within the Council s purview, is requested to submit a completed Speaker Sheet to the City Clerk. When your name is called, step to the podium and address the Council. Each speaker is limited to two minutes. The Mayor has the discretion to lengthen or shorten allotted times. 8. PUBLIC HEARINGS A. Affordable Housing Impact Fee (John Doughty, Community and Economic Development Director) Recommendation Upon closing the public hearing, adopt a resolution adopting the Affordable Housing Nexus Study and establishing an Affordable Housing Impact Fee. 9. POLICY AND ACTION ORDINANCES, RESOLUTIONS, INFORMATIONAL REPORTS A. Update on Measure C, Strategy #1 Improving Educational Outcomes for Middle/High School Youth and Providing Development Services Pilot Program (Miriam Torres, Truancy Prevention Pilot Program Coordinator) CONTINUED FROM JUNE 17 AND JULY 1, 2014 Recommendation Accept the FY13-14 evaluation report on the Measure C Violence Truancy Prevention Pilot Program: Adopt a resolution: 1) authorizing an extension of the pilot program through FY14-15; and 2) directing staff to submit a follow-up report on the Pilot Program for Council approval no later than July

4 B. Development Impact Fee Program (John Doughty, Community and Economic Development Director) CONTINUED FROM JULY 1, 2014 Recommendation Receive the Nexus Study and Development Impact Fee Program (the Program) report, and direct staff to: 1) hold a community meeting to receive community input regarding the Program; and 2) return to the City Council in the fall of 2014 with a draft Ordinance and Fee Resolution for City Council consideration. C. Discussion on Potential New Moratorium on Land Use Entitlements West of Highway 101 (John A. Nagel, City Attorney and John Doughty, Community and Economic Development Director) Recommendation Discuss whether to impose a new moratorium on land use entitlements west of Highway 101; and by motion, direct the Office of the City Attorney to return to City Council, no later than September 16, 2014, with an interim moratorium ordinance and a recommendation as to duration (i.e., one-year or two-year). D. Site Work for a New Playground at Bell Street Park (John Doughty, Community and Economic Development Director) Recommendation Adopt a resolution: 1. Approving the plans and specifications for a playground at Bell Street Park, retroactively authorizing the advertisement of the project for bid; 2. Authorizing the City Manager to accept and analyze the bids received, award a construction contract to the lowest responsive and responsible bidder, and establish a change order contingency of 10% of the bid amount; and authorizing the City Manager to allocate additional funding in an amount not to exceed $125,000 for the project from the Capital Improvements Reserve Fund, if needed. E. Proposed Community Panel to Interview Candidates for Police Chief (Barbara Powell, Assistant City Manager) Recommendation That each City Council Member provide to the City Manager the name of one individual to serve on a Community Panel to interview candidates for the position of Police Chief, no later than Monday, July 21 st and provide clarification as to the City Council intent regarding their direction to the City Manager for community involvement in the interview process for the number of finalists as determined by the City Manager. 4

5 10. ADJOURNMENT In memory of Debbie Bickell Mission Statement The City of East Palo Alto provides responsive, respectful, and efficient public services to enhance the quality of life and safety for its multi-cultural community. 5

6 CITY OF EAST PALO ALTO OFFICE OF THE CITY MANAGER 2415 University Avenue East Palo Alto, CA Consent Calendar Item: #4C City Council Agenda Report Date: July 15, 2014 To: Via: From: Subject: Honorable Mayor and Members of the City Council Magda A. González, City Manager John Doughty, Community and Economic Development Director Affordable Housing Program Ordinance Recommendation By motion, adopt the Affordable Housing Program Ordinance. Alignment with City Council Strategic Plan This recommendation is aligned with: Priority #3: Increase organizational effectiveness and efficiency Priority #6: Create a safe and healthy community Background On July 1, 2014, the City Council held a public hearing on the Affordable Housing Program Ordinance and upon conclusion unanimously waived first reading and introduced an ordinance, amended from the proposed Ordinance as discussed below, repealing Chapter 8.5 of the East Palo Alto Zoning Ordinance entitled Below Market Rate Housing Program and simultaneously reenacting Chapter 8.5 with new provisions, renaming it the Affordable Housing Program. The City Council made the following amendments to the proposed ordinance at its July 1 st meeting: Increase the proposed 15% set-aside of inclusionary units to 20%, which was the level previously set under the Below Market Rate Housing Program. The option to set-aside inclusionary units would apply if an applicant elected to construct ownership units, rather than pay the affordable housing impact fee; Page 1

7 The City Council also directed Staff to return to City Council after the Ordinance is adopted so that City Council could consider possible additional amendments to address the following areas of concern: For rental projects, explore alternatives to the percentage change in median rents, as documented by the City s Rent Stabilization Board for annual adjustments to the Affordable Housing Impact Fee, as set forth in Section of the Ordinance; Consider amending or deleting Section (Waiver) in light of concerns expressed at the public hearing by Councilmember Abrica; and Consider amending the Ordinance to specifically state that housing constructed under the Affordable Housing Program is affordable to the range of incomes commonly found within the City of East Palo Alto (i.e., moderate-income, lowincome, very low-income, and extremely low-income levels). Analysis The Affordable Housing Program Ordinance reflects affordable housing best practices and the legal requirements in existence during its passage. It also attempts to anticipate the changing legal landscape that is currently in a state of flux as evidenced by the California Supreme Court s decision to review the legal basis that many local jurisdictions rely upon to enact affordable housing ordinances. A summary of the changes from the existing Below Market Rate Housing Program Ordinance are included in Attachment 1. As noted in the July 1 st staff report, new and emerging law counsels in favor of closely adhering to Assembly Bill 1600, commonly referred to as the Mitigation Fee Act, when enacting fees, including an affordable housing impact fee. This change represents a policy shift away from requiring developers to provide a certain percentage of affordable units (or inclusionary units) within each residential project, commonly referred to as an inclusionary requirement or setaside, as the primary mode of compliance in favor of an Affordable Housing Impact Fee. The Affordable Housing Program Ordinance complies with the most stringent pronouncements of California law. First, by complying with the Mitigation Fee Act, the Nexus Study establishes a reasonable relationship between the fee and the impact caused by market-rate development. Second, by anticipating emerging law, the Nexus Study makes the requisite factual findings a local jurisdiction may have to make to impose an affordable housing impact fee if the California Supreme Court so rules. The Affordable Housing Program Ordinance now incorporates the vast majority of recommendations in the Nexus Study prepared by David Rosen and Associates ( DRA ), in addition to Staff recommendations. DRA s remaining recommendations concerning the maximum supportable affordable housing impact fee amount will be considered by City Council in a companion staff report. Page 2

8 Fiscal Impact The approval of the Affordable Housing Program Ordinance will generate special (restricted) revenues dedicated to affordable housing. Administration of affordable housing funds and programs are currently funded by the General Fund, but could be wholly or partially funded by funds generated by the imposition of the Affordable Housing Impact Fee as required by the Ordinance. Attachments 1. Summary of Changes 2. Affordable Housing Program Ordinance Page 3

9 ATTACHMENT 1 TABLE 1: SUMMARY OF CHANGES TO CHAPTER 8.5 Existing Section New Section Comments Section Findings. Section FINDINGS 1) Mitigation Fee Act (AB 1600) requirements are incorporated in subsection (a). 2) New housing cycle, and element updates to subsection (b) are included. 3) Two new subsections are added. This includes (j) regarding the Redevelopment Agency s dissolution, and (k), concerning the Nexus Study. Section Definitions. Section ) Affordable Housing Impact DEFINITIONS Fee, as a newly defined term 2) New construction is defined to include voluntary removal and replacement of existing Section Basic requirement Residential ownership projects. Section BASIC REQUIREMENT housing. 1) The requirements for rental and ownership units are combined. 2) Inclusionary requirements are eliminated for rental projects only. 3) Affordable housing impact fee is established. 4) Alternatives for residential ownership projects now include: constructing affordable housing and converting market-rate housing or commercial property to affordable units to meet a 20% set-aside of inclusionary units. Rental units are not subject to the 20% set-aside, except citysubsidized rental projects. 5) Requirement now closely match the density bonus program requirements, as outlined in Section , if an applicant elects to construct affordable housing.

10 Section Basic requirement Residential rental projects. Section Time performance required. Section Continued affordability; administrative guidelines. Section Alternatives to on-site construction. Section Use and expenditure of fees. Section Waiver. Section Enforcement. NEW SECTION NEW SECTION Section Severability. Section DENSITY BONUS Section TIME PERFORMANCE REQUIRED Section ADMINISTRATIVE GUIDELINES Section USE AND EXPENDITURE OF FEES Section EXEMPTIONS Section ENFORCEMENT Section Section Not Applicable A section titled density bonus is incorporated in place of the residential rental requirements. Time Performance expressly states when fees are due, and the need for an Affordable Housing Impact Fee summary. This section is revised to ensure that the provisions parallel those already established Chapter 8.4 Density Bonus. This section has been eliminated. However, alternatives are allowed and are now incorporated in Section Staff incorporated additional language regarding the administrative costs that are recoverable, as contained in DRA s recommendation 8, and renumbered this section to reflect deletion of Section in the BMR ordinance. Exemptions are now included, which were omitted from the BMR ordinance. This section was also renumbered. The City Attorney is now named as the responsible party for enforcement of this Chapter. This section is also renumbered. A new section that provides the City Council the discretion to waive, limit, or suspend the requirements of this Chapter. A new section that clarifies that existing appeal provisions can be used to redress decisions made by the Planning Commission and the City Council pursuant to this Chapter. This section is deleted from the codified version of the BMR ordinance and included in Section 4 of the new ordinance. C:\Documents and Settings\jle\Desktop\BMR_staff report + ordinance draft_v7 (post-jdl comments).doc

11 ATTACHMENT 2 ORDINANCE NO. AN ORDINANCE OF THE CITY OF EAST PALO ALTO REPEALING CHAPTER 8.5 ( BELOW MARKET RATE HOUSING PROGRAM ) OF THE CITY S COMPREHENSIVE ZONING ORDINANCE AND REENACTING CHAPTER 8.5 AS THE AFFORDABLE HOUSING PROGRAM. WHEREAS, the Regional Housing Need Allocation ( RHNA ) is the statemandated total number of housing units, by affordability level, that each subregion (and, as a consequence, each jurisdiction within it) must accommodate in its Housing Element; and WHEREAS, the Association of Bay Area Governments set the RHNA for the San Mateo County Subregion at 16,418 units for the period 2014 to 2022; and WHEREAS, the City of East Palo Alto is a member of the San Mateo County Subregion and is required to accommodate 467 units, which consists of 118 units for households earning less than 80 percent of the San Mateo County Area Median Income ( AMI ); and WHEREAS, the City of East Palo Alto Redevelopment Agency generated housing affordable to households earning less than 80 percent of AMI, and was dissolved by the Governor and the Legislature of the State of California on February 1, 2012; and WHEREAS, the Below Market Rate Housing Program, which is codified in Chapter 8.5 of the East Palo Alto Zoning Ordinance, is designed to generate housing affordable to households earning less than 80 percent of the AMI; and WHEREAS, the Below Market Rate Housing Program currently consists of approximately 302 residential housing units that rent or sell below market to households earning less than 120 percent of the San Mateo County AMI; and WHEREAS, the Below Market Rate Housing Program implements the General Plan Housing Element, and requires periodic amendment in response to changing state law; and WHEREAS, the East Palo Alto City Council commissioned a Residential Nexus Study (the Nexus Study ) to revise the Below Market Rate Housing Program so that it

12 adheres to newly promulgated state laws and case law, and to identify and implement affordable housing best practices; and WHEREAS, the results of the Nexus Study were presented to the Planning Commission on September 23, 2013, and the City Council on November 6, 2013, January 4, 2014, and July 1, 2014, and the City Council wishes to implement the Nexus Study s recommendations. THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO DOES HEREBY ORDAIN AS FOLLOWS: SECTION 1. hereby repealed. Chapter 8.5 of the Zoning Ordinance of thecity of East Palo Alto is SECTION 2. Chapter 8.5 of the Zoning Ordinance of the City of East Palo Alto entitled the Affordable Housing Program, is hereby reenacted to read as follows: CHAPTER 8.5 Section Section Section Section Section Section Section Section Section Section Section AFFORDABLE HOUSING PROGRAM FINDINGS DEFINITIONS BASIC REQUIREMENTS DENSITY BONUS TIME PERFORMANCE REQUIRED ADMINSTRATIVE GUIDELINES USE AND EXPENDITURE OF FEES EXEMPTIONS ENFORCEMENT WAIVER APPEAL Section FINDINGS In enacting this Chapter, the City finds as follows: (a) The Legislature of the State of California has found that the availability of housing is of vital statewide importance, and that providing decent housing for all Californians requires the cooperative participation of government and the private sector. The Legislature has further found that local governments must balance the rights accorded an owner of residential property through the Costa-Hawkins Act (Chapter 2.7 of Title 5 of Part 4 of Division 3 of the Civil Code) with the responsibility to make adequate provision for the housing needs of all economic

13 segments of the community. This Chapter establishes an affordable housing impact fee in accordance with the Mitigation Fee Act (Government Code ) to achieve the correct balance between the rights of an owner of residential property, and the needs of the City to exercise its police powers to enhance the public welfare by making adequate provision for the housing needs of all economic segments of the community through the cooperative participation of government and the private sector. This Chapter will also assist in meeting the City s share of the subregion s housing needs and will implement the goals, policies, and actions specified in the Housing Element of the City s General Plan. (b) The Housing Element of the City s General Plan, adopted on June 15, 2010, concluded that: (1) There are a number of market forces that impact the supply of affordable and quality housing in the City. Regional housing market conditions have created high land values, which directly affect housing affordability. More stringent underwriting and tighter loan standards have also led to an increase in loan denials, reducing the pool of eligible homebuyers, especially low-income homebuyers. The majority of households in the City are low-income. (c) (2) To provide its fair share of the region s housing needs, the City must have adequate sites for affordable housing (3) In general, extremely low- and very low-income households cannot afford market rental or owner-occupied housing. Based on prevailing rents in the City, low-income households and above can afford market-rate rents. Most low-income households cannot afford to purchase the typical median-priced home in the City. (4) The City serves as an affordable housing resource for service workers that would otherwise need to travel across the San Francisco Bay. (5) As many City residents cannot afford to own a home in the community, longtime residents with aspirations of owning a home most often move to other communities. Furthermore, many lower income residents also leave the City because of the shortage of safe, habitable, and affordable rental housing. (6) The City s Below Market Program has been and will continue to be instrumental in creating affordable housing opportunities for a variety of ethnically and economically diverse population of families who otherwise could not afford the market-rate sales prices in the City. Federal and State government programs do not provide nearly enough affordable housing or subsidies to satisfy the housing needs of lower income households who want or need housing in the City. Generally, newly constructed housing which

14 (d) (e) (f) (g) (h) (i) (j) does not receive assistance is available in the City only at prices which lower income households cannot afford to pay. Rising land prices have been a key factor in preventing development of new affordable housing. New market-rate housing construction in the City aggravates the existing shortage of affordable housing by absorbing the supply of available residential land. This not only reduces the supply of land for affordable housing, but further increases the price of remaining residential land. At the same time new housing contributes to the demand for goods and services in the City, increasing local employment at wage levels which are often not high enough to permit employees to afford housing in the City. The citizens of the City wish to retain a diverse community, with housing available to lower income local households. The City agrees with the established policy of the State of California that each community should make available an adequate supply of housing to persons at all economic levels. As new investment and redevelopment revitalizes the City, it is critical to provide housing opportunities for local residents and others who could be displaced by gentrification. A balanced community is only possible if part of the new housing built in the City is affordable to lower income households. Zoning and other ordinances concerning new housing in the City should be consistent with the community s goal of economic and social diversity. It is important that housing created under this Chapter provide housing opportunities to local residents and workers, who have particularly limited housing options. Household incomes in East Palo Alto are generally below those in San Mateo County as a whole, and affordable housing created under this Chapter should be targeted at income levels affordable to local households with lower incomes. In general, affordable units within each housing development best serve the goal of maintaining an economically integrated community. The housing program authorized by this Chapter serves the public necessity and general welfare and will promote the orderly development of the City. The program will serve to implement California law by enabling the City to provide a share of the regional housing need, assist the City in meeting housing obligations and implement the Housing Element of the City s General Plan. A Residential Nexus Study for the City of East Palo Alto, which shall be periodically updated, conforms to the Mitigation Fee Act by establishing a affordable housing impact fee program that is roughly proportional to, and bears a reasonable relationship with the impact of new housing. Periodic updates to the affordable housing fee, and nexus analysis, will respond to market fluctuations,

15 ensuring that the fee incorporates any changes in administration costs, rents, and sales prices. (k) The February 1, 2012 dissolution of Redevelopment Agencies in California resulted in the City s loss of the largest source of funding to produce affordable housing, which would have paid for the administrative costs of maintaining affordability restrictions and to develop additional affordable units. Section DEFINITIONS (a) (b) (c) Affordable ownership cost. The maximum purchase price that will be affordable to the specified household at the specified income level. The purchase price shall be considered affordable only if it is based on a reasonable down payment, and monthly housing payments, including mortgage loan principal and interest, any associated loan insurance and financing fees, property taxes and assessments, an allowance for property maintenance and repairs established by the City based on the initial cost and size of the home, homeowners insurance, a reasonable allowance for utilities based on the utility allowance applicable under Section 8 of the United States Housing Act of 1937 (not including telephone service), land rent (if the home is on rented land) and homeowners association dues, if any, which are equal to or less than one-twelfth (1/12) of thirty percent (30%) of the maximum annual household income designated for an affordable unit, during the first calendar year of a household s occupancy. The maximum household income for an affordable unit shall be based on presumed occupancy levels of one person in a studio dwelling unit, two persons in a one bedroom dwelling unit, three persons in a two bedroom dwelling unit, and one additional person for each additional bedroom thereafter. Affordable ownership cost shall be calculated assuming a down payment equal to ten percent (10%) of the total purchase price, and a conventional fixed-rate thirty-year fully amortizing loan in the amount of the difference between the purchase price and the down payment. Affordable rent. Monthly rent, including a reasonable allowance for utilities based on the utility allowance applicable under Section 8 of the United States Housing Act of 1937, and all fees for housing services, equal to or less than one-twelfth (1/12) of thirty percent (30%) of the maximum annual household income designated for an affordable unit. Affordable rent shall be based on presumed occupancy levels of one person in a studio dwelling unit, two persons in a one bedroom dwelling unit, three persons in a two bedroom dwelling unit, and one additional person for each additional bedroom thereafter. Affordable units. Dwelling units which were previously or are approved under this Chapter to be available at an affordable ownership cost to specified households

16 and other dwelling units that have been proposed by the applicant and approved by the City to meet the requirements of this Chapter. (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) Attached housing. A residential project, or part thereof, in which each dwelling unit has one or more exterior walls in common with or attached to a wall of another dwelling unit. Affordable Housing Impact Fee. A fee imposed upon certain dwelling units that reflects the reasonable costs to the City needed to mitigate the deleterious impacts of new development, which includes, but not limited to the costs the City has or will incur to fund the construction, acquisition, or financing of new or existing single- or multiple-family affordable housing projects. Detached housing. A residential project, or part thereof, in which each dwelling unit has no exterior wall in common with or attached to another dwelling unit. Dwelling unit. One or more rooms designed, occupied, or intended for occupancy as separate living quarters, with cooking, sleeping, and bathroom facilities. Eligible household. A household whose income does not exceed the maximum specified in Sections and (a)(1) for a given affordable unit. Household income. The combined adjusted gross income for all adult persons living in a dwelling unit as calculated for the purpose of the Section 8 program under the United States Housing Act of 1937, as amended, or its successor. Market-rate units. Dwelling units in residential projects which have no affordability restrictions. Master Fee Schedule. The schedule of fees established by the City Council and updated from time to time. Median income. The area median income, adjusted for household size, applicable to San Mateo County as published annually pursuant to Title 25 of the California Code of Regulations, Section 6932 (or its successor provisions) by the California Department of Housing and Community Development. New construction. In addition to newly built units, new construction includes the voluntary removal and replacement of existing units but does not include the enlargement of existing units. Residential project. (1) Any planned district, subdivision map, conditional use permit or other City land use approval, which authorizes two or more new dwelling units or live-work units or residential lots, or a combination of two or more residential lots, new dwelling units and live-work units; or (2) contemporaneous construction of two or more new dwelling units on a lot or contiguous lots not within the area of such an approval, if, in the case of contiguous lots, there is evidence of overlapping ownership or control of the lot or lots in question. Construction shall be considered contemporaneous for all units

17 for which, at any one time, a planned unit development, planned community development, subdivision map, conditional use permit or other discretionary City land use approval, or building permit, or application for such an approval or permit, is outstanding, and a certificate of occupancy has not yet been issued. (o) (p) Residential ownership project. Any residential project that includes the creation of one or more residential dwelling units that may be sold individually. A residential ownership project also includes condominium and stock cooperative conversions. Residential rental project. Any residential project that creates residential dwelling units that cannot be sold individually. Section BASIC REQUIREMENT (a) Affordable Housing Impact Fee. Except as otherwise noted, each new market-rate unit in a residential project shall be subject to an Affordable Housing Impact Fee upon adoption of the fee by resolution in accordance with the 2013 Nexus Study. To account for market fluctuations and to ensure that the fee stays current with the reasonable costs of providing affordable housing, the Affordable Housing Impact Fee will be adjusted effective the first day of each new calendar year, as follows: (1) For ownership projects, the fee is to be adjusted annually based on the percentage change in the three-year trailing Freddie Mac San Francisco- Oakland-Fremont MSA House Price Index; and (2) For rental projects, the fee shall be adjusted annually based on the annual percentage change in median rents by bedroom count in the City, averaged across unit sizes, as documented by the City s Rent Stabilization Program. (b) Option to construct or convert units to affordable housing. In the event that a developer subject to the provisions of this Chapter proposes to construct affordable dwelling units or to deed restrict the rents or sale prices of existing market-rate units, the City shall consider the request in the context of an inclusionary housing agreement, which is a regulatory agreement that outlines the obligations of the developer and the City. In that instance, at least twenty (20) percent of all market-rate units in residential ownership projects constructed in the City shall be provided at an affordable ownership cost and shall be constructed not later than the related market rate units in the same residential project. The inclusionary housing agreement shall specify all of the following, including without limitation: (1) Number of units affordable to moderate-income, low-income, very lowincome, and extremely low-income households;

18 (2) That the units shall be sold or rented to extremely low income, very low income, low-income or moderate income households at an affordable ownership cost or affordable rent, subject to the affordability restrictions; (3) That, in the event sold or rented, the purchaser or lessee of each unit shall execute an instrument or agreement approved by the city restricting the sale and prohibiting the sublease of the units in accordance with this Chapter. Such instrument or agreement shall be recorded against the parcel containing the unit and shall contain such provisions as the city may require to ensure continued compliance with this Chapter; (4) In the event of rental housing, an agreement shall additionally provide for the following conditions governing the use of the units during the restriction period, including: a. The rules and procedures for qualifying households, establishing affordable rent, vacancies, and maintaining units; b. Provisions requiring owners to verify household incomes and maintain books and records to demonstrate compliance with this Chapter; and c. Provisions requiring owners to submit an annual report to the City, which includes the name(s), address, and income of each household occupying the units, and which identifies the bedroom size and monthly rent or cost of each unit. (5) Location of the units, if not within the same site as the market-rate housing; (6) Number of bedrooms in each unit; (7) Organization proposed to market the units, which shall be different than the developer, and shall have demonstrated experience in the sale or rental of the product type; (8) Term of affordability for all units. The City requires a minimum 59 year renewable term for ownership units, and a 99 year renewable term for rental housing. (c) City Subsidized Rental Projects. For any residential rental project for which the applicant requests and receives direct City financial contribution or any form of assistance specified in Chapter 4.3 (commencing with Section 65915) of Division 1 of Title 7 of the Government Code, affordable housing may be required by the City pursuant to the terms of that assistance. If affordable housing is required, the City shall require, as a condition of City assistance, that the rent regulatory agreement include the applicant s agreement to any limitation on rents in

19 consideration for the City s assistance, to ensure compliance with the Costa- Hawkins Act (Chapter 2.7 of Title 5 of Part 4 of Division 3 of the Civil Code). Section DENSITY BONUS (a) (b) Any market-rate units contained in a residential project utilizing the City s density bonus provisions, codified in the City of East Palo Alto Municipal Code Sections to , are also subject to the Affordable Housing Impact Fee. However, pursuant to Section , the Affordable Housing Impact Fee shall not be assessed on those units built and awarded under the City s Density Bonus provisions. Any affordable units constructed pursuant to the density bonus provisions shall be jointly administered with the Affordable Housing Program units. Section TIME PERFORMANCE REQUIRED (a) (b) Affordable Housing Impact Fee and Conditions of Approval. (1) An application for the initial approval of a residential project shall include an affordable housing plan describing how the residential project will comply with the provisions of this Chapter, including the anticipated fee (based upon net square footage of each unit). (2) Conditions shall be imposed upon the initial application to carry out the purposes of this Chapter. (3) Additional conditions may be imposed on later City approvals or actions, including without limitation planned unit developments, subdivision approvals, conditional use permits, and building permits, to implement the purposes of this Chapter. Issuance of Building Permits. No building permit shall be issued for any marketrate unit in a residential project until the permittee has paid the applicable Affordable Housing Impact Fee pursuant to this Chapter. Section ADMINISTRATIVE GUIDELINES (a) Maximum Sales Price. For any deed restricted ownership affordable unit constructed prior to the adoption of this ordinance and pursuant to (b), the maximum sales price permitted on resale of an affordable unit shall be the lowest of the following amounts: (1) the seller s lawful purchase price increased by the percentage of increase in the median income from the date of the original purchase of the home by the seller to the date the city is notified of the seller s intent to sell

20 the home; or (2) fair market value; provided, however, that in no event shall this Chapter require a sales price lower than the seller s lawful purchase price, plus the seller s reasonable cost of sales and the value of capital improvements, to the extent (if any) authorized by resale restrictions entered into by the City and the owner. (b) (c) (d) Primary Residence. The documents recorded under subsection (d) herein shall require that the affordable units be maintained as the purchaser s primary place of residence. Household Eligibility. No household shall be permitted to begin occupancy of a unit which is required to be affordable under this Chapter unless the City or its designee has approved the household s eligibility. If the City or its designee maintains a list of eligible households, households newly occupying affordable units shall be selected first from that list to the extent provided in the regulatory agreement or resale restrictions. To the extent permitted by existing law, households in which at least one member has lived or worked in the City for at least one year shall have priority in receiving the opportunity to purchase or rent affordable units. Recorded Restrictions. Regulatory agreements and, if the affordable units are owner-occupied units, resale restrictions, deeds of trust or other documents, all consistent with the requirements of this ordinance, shall be recorded against affordable owner-occupied units and residential projects containing affordable rental units. (1) For owner-occupied units, restrictions shall be effective for fifty-nine (59) years, and thereafter until payment of any funds due to the City under the applicable resale restrictions, and shall renew for a new term of fifty-nine (59) years upon any transfer during an existing fifty-nine (59) year term. The resale restrictions shall grant an option to the City or its designee to purchase any affordable owner-occupied unit at the maximum price which could be charged to a purchaser household, at any time the owner proposes sale. (2) For rental units, restrictions shall be effective for a term of ninety-nine (99) years and shall renew for a new term of ninety-nine (99) years upon any transfer during an existing ninety-nine (99) year term, or for so long as the structures which make up the residential rental project remain in existence, whichever period is shorter. (3) The City Attorney shall approve model forms of the documents required by this Section and all major variances from those forms for specific residential projects.

21 (e) (f) (g) Comparability of Units. Affordable units shall be comparable to market-rate units in the same residential project in size, number of bedrooms, exterior appearance, interior features, overall quality of construction and all other respects, except for affordable multi-family units in a residential project in which all the market-rate units are detached housing, which need not be comparable in size or exterior appearance. Affordable units shall be dispersed throughout the residential project in a manner acceptable to the City. Guidelines/Procedures. The City may choose to adopt guidelines or procedures for implementing this Chapter. Minimum Requirements. The requirements of this Chapter are minimum requirements. The City may require additional affordable units or additional measures to further affordable housing goals to the extent it has authority to do so without respect to this ordinance. Section USE AND EXPENDITURE OF FEES (a) (b) City Affordable Housing Fund. All fees collected under this Chapter shall be deposited into a separate account designated as the City Affordable Housing Fund. Provision of Affordable Housing. The fees collected under this Chapter and all earnings from investment of the fees shall be expended exclusively for provision of affordable units in the City through acquisition, construction, development assistance, rehabilitation, financing, rent or other subsidies, provision of supportive services, or other methods and for the costs of administering this ordinance. Administration includes reviewing the compliance and administration of resale restrictions on existing affordable units to ensure that adequate provisions are made to minimize the loss of affordability of these units. The housing shall be of a type, or made affordable at a cost or rent, for which there is an unmet need in the City and which is not adequately supplied in the City by private housing development in the absence of public assistance established by City Council. Eligible use shall include funding a revolving reserve fund to be used to purchase resale-restricted affordable units for resale to another qualified buyer to minimize the loss of affordability of these units. Section EXEMPTIONS The provisions of this Chapter shall not be applicable to the following: (a) (b) Units contained within a one-hundred-percent deed restricted affordable project provided that the affordability is consistent with covenants and terms approved by the City. Affordable dwelling units built and awarded under the City Density Bonus provisions.

22 (c) Second Dwelling Units, as set forth in Section 6426 of Chapter 22.5 of the City of East Palo Alto s Zoning Ordinance. Section ENFORCEMENT (a) (b) (c) (d) (e) It shall be a misdemeanor for any person to sell or rent an affordable unit under this Chapter at a price or rent exceeding the maximum allowed under this Chapter or to a household not qualified under this chapter. The City Attorney shall be authorized to enforce the provisions of this Chapter and all regulatory agreements and resale controls placed on affordable units by civil action and any other proceeding or method permitted by law. The City may revoke, deny or suspend any permit or development approval for a residential project which has failed to comply with this Chapter. Failure of any official or agency to fulfill the requirements of this Chapter shall not excuse any applicant or owner from the requirements of this Chapter. The City shall be entitled to recover all its costs, including reasonable attorneys fees incurred in enforcing this Chapter. Section WAIVER (a) Notwithstanding any other provision of this Chapter, the City Council may waive, limit, or suspend the requirements of this Chapter upon a finding and determination that doing so is in the best interests of the City, including without limitation the bases set forth below. (1) No Deleterious Impact Finding. Where the applicant establishes to the City s satisfaction that the proposed development project will not generate any additional need for affordable housing, the City Council may waive the requirements of this Chapter. (2) Deprivation of Constitutional Rights. The City shall not condition any permit in any manner which results in a deprivation of the applicant s constitutional rights. (3) Hardship. The City may waive or limit the requirements of this Chapter if doing so would work an undue hardship on the applicant. It is entirely the burden of the applicant to show hardship and to produce evidence to support following findings:

23 a. The imposition of the mitigation or fee otherwise required by this Chapter would make the development of the particular project infeasible; and b. The benefits to the City from the particular development project outweigh its burdens in terms of increased demand for affordable housing and other deleterious impacts. c. For purposes of this subsection, infeasible shall mean incapable of being accomplished in a successful manner within a reasonable period of time, taking into account economic, environmental, legal, social and technological factors. (b) (c) The burden of establishing by satisfactory factual proof the applicability and elements of subsections (a)(1), (a)(2), or (a)(3) of this section shall be on the applicant. No waiver or limit shall be granted pursuant to this section unless a finding is made, based on satisfactory factual proof provided by the applicant, that at least one of the requirements set forth in subsection (a)(1) or (a)(2) or (a)(3) of this section has been satisfied. Section APPEAL (a) (b) The applicant of any residential project subject to the provisions of this Chapter and aggrieved by any administrative decision of the City relating to the imposition of any requirements of this Chapter may appeal such decision to the Planning Commission in the same manner as provided in Section of Chapter 30 the City s Zoning Ordinance. The applicant of any unit subject to the provisions of this Chapter and aggrieved by any decision made by the Planning Commission pursuant to this Chapter may appeal such decision to the City Council in the same manner as provided in Section of Chapter 30 of the City s Zoning Ordinance. SECTION 3. ENVIRONMENTAL DETERMINATION The City Council finds that the ordinance is exempt under the California Environmental Quality Act ( CEQA ) for the following reasons: 1. Under CEQA Guidelines Section 15061(b)(3), CEQA review is not required because it can be seen with certainty that there is no

24 possibility that the adoption of the ordinance will have a significant effect on the environment. 2. Under the CEQA Guidelines Section (b)(4) as the creation of government funding mechanisms or other fiscal activities which does not involve any commitment to any project, which may result in a potentially significant physical impact on the environment is not a project under CEQA. SECTION 4. CONSTITUTIONALITY; SEVERABILITY If any section, subsection, sentence, clause or phrase of this Ordinance is for any reason held to be unconstitutional, invalid or ineffective by a court of competent jurisdiction, such decision shall not affect the validity or effectiveness of the remaining portions of this Ordinance. The City Council hereby declares that it would have passed this Ordinance, and each section, subsection, sentence, clause and phrase thereof irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases be declared unconstitutional, invalid or ineffective. SECTION 5. EFFECTIVE DATE This Ordinance shall take effect and be in full force and effect sixty (60) days after its final passage. The City Clerk shall cause this ordinance to be published and posted as required by law. Introduced at a Regular Meeting of the City Council on July 1, 2014 and adopted at a regular meeting of the City Council on July 15, 2014, by the following vote: AYES: NAES: ABSENT: ABSTAIN: SIGNED: Laura Martinez, Mayor ATTEST: APPROVED AS TO FORM: Nora Pimentel, Deputy City Clerk John A. Nagel, City Attorney

25 CITY OF EAST PALO ALTO OFFICE OF THE CITY MANAGER 2415 UNIVERSITY AVENUE EAST PALO ALTO, CA Consent Calendar Item: #4D City Council Agenda Report Date: July 15, 2014 To: Via: From: Subject: Honorable Mayor and Members of the City Council Magda A. González, City Manager John Nagel, City Attorney John Doughty, Community and Economic Development Director Resolution Authorizing the Bay Area Water Supply and Conservation Agency to Initiate, Defend, and Settle Arbitration Related to the Water Supply Agreement with the City and County of San Francisco Recommendation Adopt a Resolution authorizing the Bay Area Water Supply and Conservation Agency (BAWSCA) to initiate, defend, and settle arbitration related to the water supply agreement with the City and County of San Francisco. Alignment with City Council Strategic Plan This recommendation is primarily aligned with: Priority #2: Enhance Economic Vitality Priority #4: Improve Public Facilities and Infrastructure Background The City Water System purchases 100 percent of its potable water supply from the San Francisco Public Utilities Commission (SFPUC) Hetch Hetchy System under the terms of a water supply agreement, an Agreement Between the City and County of San Francisco and Wholesale Customers in Alameda County, San Mateo County, and Santa Clara County (Agreement). The Agreement was signed in 2009, expires in 2034, and delineates the terms under which the City purchases water, including water supply (quantity) and water quality, and all aspects of the SFPUC rate-setting process..

26 The City is a member of the Bay Area Water Supply and Conservation Agency (BAWSCA), a special district that represents the interests of the 26 water agencies that purchase SFPUC water. In addition to the wholesale customers, the SFPUC provides retail water service to customers in the City and County of San Francisco (retail customers). A primary responsibility of BAWSCA is ensuring water rates accurately reflect the actual costs of providing water service. BAWSCA staff performs extensive rate reviews each year to: (1) verify the accuracy of the SFPUC s revenue requirement calculations (used to determine rates); (2) ensure the SFPUC s adherence to Generally Accepted Accounting Principles and compliance with annual audit findings; and (3) ensure SFPUC capital and operations costs are appropriately allocated between retail and wholesale customers. If BAWSCA identifies costs they believe are incorrectly allocated, BAWSCA and SFPUC staff attempt to resolve disputes through informal discussions. Per the terms of the Agreement, issues not resolved informally must be settled through arbitration, which has only been necessary one time since BAWSCA has not previously recommended being designated as the member agencies arbiter since the agreement is only five years old, and most issues are settled informally. However, BAWSCA addresses numerous financial questions annually, and is continuing to address a pending issue from Fiscal Year Although no arbitration is anticipated, BAWSCA believes this to be an opportune time for the arbitration authorization. Analysis The proposed action will designate BAWSCA as the member agencies representative and thus the City s representative, to arbitrate disputes regarding rate issues, and does not extend to other legal concerns. Staff supports the recommended action because BAWSCA currently performs extensive analysis of SFPUC rate proposals and possesses the technical and historical background to effectively analyze detailed financial issues. Additionally, BAWSCA staff has an effective working relationship with the SFPUC staff, and allowing BAWSCA to represent all member agencies will be a much more efficient process if future arbitration is necessary. If the resolution is adopted by 75 percent of the member agencies, BAWSCA will become the member agencies representative to arbitrate disputes regarding rate issues for the limited purposes set forth in the Agreement. The City will have the opportunity to participate in the arbitration of any disputes through its representative on the BAWSCA Board of Directors, which is comprised of representatives of each of the 26 member agencies. Additionally, BAWSCA is forming a Wholesale Customer Committee which will advise the BAWSCA Board on how to address financial and rate issues. BAWSCA has requested the City Manager appoint an individual who can represent the City s interest on complex financial issues through the Wholesale Customer Settlement Committee. The City Manager has appointed the Community and Economic Development Director as the primary representative and the Finance Director as alternate. The attached resolution must be adopted by 75 percent of the member agencies to become effective.

27 Fiscal Impact BAWSCA may assess each of the 26 member agencies for the cost of the arbitration based on its water usage in order to ensure adequate reserves are maintained. However, it is costeffective for the City to be represented by BAWSCA and participate in arbitration of any such disputes. As a result of arbitration, the City s rate could increase or decrease. Any such change would be phased in over time wherever possible.

28 RESOLUTION NO. A RESOLUTION AUTHORIZING THE BAY AREA WATER SUPPLY AND CONSERVATION AGENCY TO INITIATE, DEFEND, AND SETTLE ARBITRATION RELATED TO THE WATER SUPPLY AGREEMENT WITH THE CITY AND COUNTY OF SAN FRANCISCO WHEREAS, in April 2003, the City and other water suppliers in Alameda, San Mateo, and Santa Clara counties established the Bay Area Water Supply and Conservation Agency (BAWSCA) as authorized by Water Code Section 81300, et seq., pursuant to State legislation enacted in 2002 (AB 2058); and WHEREAS, the City is represented on the BAWSCA Board of Directors; and WHEREAS, the City has previously approved the Water Supply Agreement between the City and County of San Francisco and Wholesale Customers in Alameda County, San Mateo County, and Santa Clara County (Agreement); and WHEREAS, the Agreement specifically delegates, pursuant to Section 8.04.A., Wholesale Revenue Requirement review to BAWSCA; and WHEREAS, all questions and disputes related to the Agreement are subject to judicial determination, except for the following matters, specified in Section 8.01.A., which are subject to mandatory, binding arbitration: (1) the determination of the Wholesale Revenue Requirement; (2) San Francisco Public Utilities Commission s (SFPUC s) adherence to accounting practices and conduct of the Compliance Audit; and (3) the SFPUC s classification of new assets for the purposes of determining the Wholesale Revenue Requirement; and WHEREAS, the Agreement, pursuant to Section 8.04.C., provides that the Wholesale Customers may, with the consent of BAWSCA, delegate the authority to initiate, defend, and settle arbitration of the matters provided for in Section 8.01.A. set forth above; and WHEREAS, the BAWSCA Board of Directors has requested that the City delegate this authority to initiate, defend, and settle arbitration solely for those limited matters in the Agreement that must be resolved through binding arbitration in order to protect the financial interests of the Wholesale Customers by ensuring they pay no more than their fair share of regional water system costs; and WHEREAS, BAWSCA has the capabilities required to serve in this capacity by virtue of the expertise and qualifications of BAWSCA staff and consultants in relevant disciplines, including civil engineering, water supply planning, finance, economics, accounting, and law; and WHEREAS, BAWSCA will also finance the costs associated with such binding arbitration;

29 NOW, THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO HEREBY: 1. Appoints BAWSCA, acting through its Board of Directors, or its authorized designee, as its authorized representative to initiate, defend, and settle arbitration for the matters that are subject to mandatory, binding arbitration in the Water Supply Agreement between the City and County of San Francisco and Wholesale Customers in Alameda County, San Mateo County, and Santa Clara County. 2. This appointment shall continue through the term of the Agreement, as extended or renewed, or until revoked by the City. PASSED AND ADOPTED this 15 th day of July 2014, by the following vote: AYES: NAES: ABSENT: ABSTAIN: SIGNED: Laura Martínez, Mayor ATTEST: APPROVED AS TO FORM: Nora Pimentel, Deputy City Clerk John A. Nagel, City Attorney

30 CITY OF EAST PALO ALTO OFFICE OF THE CITY MANAGER 2415 UNIVERSITY AVENUE EAST PALO ALTO, CA Consent Calendar Item: #4E City Council Agenda Report Date: July 15, 2014 To: Via: From: Subject: Honorable Mayor and Members of the City Council Magda A. González, City Manager John Doughty, Community and Economic Development Director Award of Construction Contract for Runnymede Storm Drain Phase II & O Connor Pump Station Outfall Project Recommendation Adopt a resolution approving the Plans and Specifications for Runnymede Storm Drain Phase II & O Connor Pump Station Outfall Project and authorizing advertisement of the project for bid, authorizing the City Manager to analyze and accept the bids received, and award a construction contract to the lowest responsive and responsible bidder, and establishing a change order contingency of up to 10% of the bid amount, not-to-exceed a total budget of $1,262,000. Alignment with City Council Strategic Plan This recommendation is primarily aligned with: Priority #1: Enhance Public Safety and Emergency Preparedness Priority #4: Improve Public Facilities and Infrastructure Priority #6: Create a Healthy and Safe Community Background The Runnymede Storm Drain Phase II & O Connor Pump Station Outfall Project (Project) provides storm drain discharge to San Francisquito Creek for over one third of East Palo Alto, between O Connor and Runnymede Streets. Phase I was completed in 2010 and included a new storm drain outfall structure near Runnymede Street. The purpose of the Runnymede Storm Drain Phase II and O Connor Pump Station Outfall Project is to provide physical flood protection improvements to the low-lying residential areas in the eastern portion of the City..

31 The Project includes excavating and widening of the South Drainage Channel along the length of the Project Area, and dredging of a detention pond, which has filled with silt over the years, at the southern terminus of the channel. Dredging and widening of the channel will increase the capacity of the channel to convey a 100-year flood event. The excavated materials from the channel and the detention pond will be used to construct a berm on the west side of the channel to reduce intermittent tidal flooding. The Project will also include re-vegetation and restoration of areas impacted during construction with appropriate native plantings. The Project will include repair of the O Connor Pump Station outfall structure that discharges stormwater from pumps into San Francisquito Creek near Friendship Bridge. Due to federal funding requirements, both NEPA and CEQA environmental studies have been completed and on May 21, 2013, the City Council adopted a Mitigated Negative Declaration (MND) for the project and on May 22, 2013, a Notice of Determination regarding the action was filed with the Clerk of the Board of San Mateo County and with the Office of Planning and Research. Analysis This Storm Drain Improvement project is critical to the City s Flood Protection Program. Approximately 60% of the City s storm water flows to the Bay through the O Connor Pump Station and improving the retention pond provides vital storm water storage capacity and preventing storm water from backing up in the City streets. The United States Department of Fish and Wildlife restricts the City from performing any construction until September 1, 2014 due to environmental concerns. In addition, the Regional Water Quality Board requires any channel work to be completed by October 15 th. This project has a very narrow construction window. Permits are required and have been obtained or are in the process of being obtained from the following regulatory agencies: 1. U.S. Fish and Wildlife Service 2. U.S. Army Corps of Engineers 3. State of California Department of Fish and Wildlife 4. San Francisco Bay Regional Water Quality Control Board 5. San Francisco Bay Conservation and Development Commission Staff recommends that the City Council approve the Plans and Specifications for Runnymede Storm Drain Phase II & O Connor Pump Station Outfall Project and authorize the City Manager to accept and analyze the bids received, award a construction contract to the lowest responsive and responsible bidder and establish a change order contingency of up to 10% of the bid amount, for a total not-to-exceed amount of $1,262,000. Without timely authorization, the project will be delayed until Fall of 2015 due to the environmental and permit constraints.

32 The estimated project cost is: Design $225,000 Environmental Bair Island Restoration Project Contribution $60,000 Right of Way PG&E Easement $20,000 Lands of Finley Easement $1,000 Construction (Engineer s Estimate) $1,200,000 Total Estimated Project Expenses $1,506,000 Sources of Funds: US EPA, STAG Fund: $854,000 DWR: $667,953 Total: $1,521,953 Fiscal Impact There is no fiscal impact to the General Fund with this action. This project is fully funded by two grants a Federal (US Environmental Protection Agency U.S. EPA) for $854,000 and a State (Department of Water Resources DWR) for $667,953.

33 RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO APPROVING THE PLANS AND SPECIFICATIONS FOR RUNNYMEDE STORM DRAIN PHASE II AND O CONNOR PUMP STATION OUTFALL PROJECT, AUTHORIZING THE PROJECT TO BE ADVERTISED FOR BID, AUTHORIZING THE CITY MANAGER TO ACCEPT AND ANALYZE THE BIDS RECEIVED, AWARD A CONSTRUCTION CONTRACT TO THE LOWEST RESPONSIVE AND RESPONSIBLE BIDDER, AND ESTABLISHING A CHANGE ORDER CONTINGENCY OF UP TO 10% OF THE BID AMOUNT WHEREAS, on February 1, 2012, the City entered into agreement with WRA Environmental Consultants for environmental services of the Runnymede Storm Drain Phase II and O Connor Pump Station Outfall Project; and WHEREAS, on July 24, 2012, the City entered into agreement with Wilsey Ham, Inc. for design services of the Runnymede Storm Drain Phase II and O Connor Pump Station Outfall Project; and WHEREAS, on April 15, 2013, the City of East Palo Alto received Federal grants from the U.S. Environmental Protection Agency in the amount of $854,000 for Runnymede Storm Drain Phase II & O Connor Pump Station Outfall Project; and WHEREAS, on March 24, 2014, the City of East Palo Alto received State grants from the California Department of Water Resources in the amount of $667,953 for Runnymede Storm Drain Phase II & O Connor Pump Station Outfall Project; and WHEREAS, on May 21, 2013, the City Council adopted a Mitigated Negative Declaration for the Project and on May 22, 2013, a Notice of Determination regarding the action was filed with the Clerk of the Board of San Mateo County and with the Office of Planning and Research; and WHEREAS, the 100% Final Plans and Specifications (Contract Documents) for Runnymede Storm Drain Phase II and O Connor Pump Station Outfall Project have been reviewed and approved by staff; NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO HEREBY: 1) Approves the Plans and Specifications for Runnymede Storm Drain Phase II and O Connor Pump Station Outfall Project and authorizes advertisement of the project for bid; and 2) Authorizes the City Manager to accept and analyze the bids received, award a construction contract to the lowest responsive and responsible bidder and establish a change order contingency of up to 10% of the bid amount, for a total not-to-exceed amount of $1,262,000.

34 PASSED AND ADOPTED this 15 th day of July 2014, by the following vote: AYES: NAES: ABSENT: ABSTAIN: SIGNED: Laura Martinez, Mayor ATTEST: APPROVED AS TO FORM: Nora Pimentel, Deputy City Clerk John A. Nagel, City Attorney

35 CITY OF EAST PALO ALTO OFFICE OF THE CITY MANAGER 2415 UNIVERSITY AVENUE EAST PALO ALTO, CA Consent Calendar Item: #4F City Council Agenda Report Date: July 15, 2014 To: Via: From: Subject: Honorable Mayor and Members of the City Council Magda A. González, City Manager John Doughty, Community and Economic Development Director Sharon Jones, Deputy Community and Economic Development Director Cooley Landing Park - Phase III, Education Center Project Recommendation Adopt a resolution: 1) Approving the Plans and Specifications for Cooley Landing Park, Phase III, Education Center and authorizing advertisement of the project for bid; and, 2) Authorizing the City Manager to accept and analyze the bids received, award a construction contract to the lowest responsive and responsible bidder and establish a change order contingency of up to 10% of the bid amount, for a total project budget not-to-exceed $2,650,000. Alignment with City Council Strategic Plan This recommendation is primarily aligned with: Priority #2: Enhance Economic Vitality Priority #4: Improve Public Facilities and Infrastructure Priority #5: Improve Communication and Enhance Community Engagement Background The City of East Palo Alto is developing Cooley Landing as a public park with an education center and community facility. In 2010, after extensive community meetings and site evaluation, the City Council approved the Cooley Landing Vision Plan. In 2011, the East Palo Alto City Council voted unanimously to certify a "Mitigated Negative Declaration" determination for the Cooley Landing Initial Study, pursuant to the California Environmental Quality Act (CEQA)..

36 In February 2011, construction of the first phase of the project, the Remediation and Public Access Project, was completed. The Phase I project capped contaminated soils at the site with clean soil, and a portion of the access road, parking spaces and pedestrian trails were constructed. The park was opened to the public in July In June 2012, the City of East Palo Alto was awarded a $5 Million Proposition 84 Grant from the State of California Department of Parks and Recreation for design and construction of Cooley Landing Park. On May 21, 2013, the City Council provided direction to staff on actions relating to the development of Cooley Landing Park and Education Center, including approval to cap additional contaminated soils discovered during testing, to demolish the former boathouse building and to build a new Education Center substantially equivalent in size, footprint and height to the existing boathouse, and in the same location. Unfortunately, the boathouse building burned to the ground in a fire of unknown origin, and the rubble was removed during the construction of the Phase II Access Road and Planting project which began in September 2013, and was completed in February The Phase II project completed the utility infrastructure to the site, the asphalt paving for the access road and parking lot, as well as soil amendments and re-seeding of the park with native plants. On June 4, 2014, the City Council accepted the Phase II project and authorized a Notice of Completion to be recorded. On September 17, 2013, the City Council approved the selection of FOG Studio and authorized the City Manager to enter into an agreement for architectural services for Cooley Landing Park Phase III, the Education Center facility. Beginning in October 2013, the architects, the project management consultant and City staff hosted eight monthly community meetings to consider the design of the building. Topics included sustainability opportunities (October 2013), activities and space (November 2013), design character (December 2013), schematic design (January 2014), design development (February and March 2014) and finally, construction documentation (April and May 2014). Most recently, on June 17, 2014, staff presented a project status update to the City Council. The City Council, by motion, directed the City Manager to return to the City Council on July 15, 2014 for approval of an award process by which the City Manager would have the authority to award the construction contract for the Cooley Landing Park Phase III Education Center project to the lowest responsive and responsible bidder. The City Council selected this option in order to be able to award the construction contract in August, during the Council s recess, such that construction can start in September. Analysis The 95% complete contract documents have been reviewed and approved with minor corrections by the Community and Economic Development Department, Midpeninsula Regional Open Space District, Menlo Park Fire Protection District, East Palo Alto Sanitary District, San Francisco Bay Conservation and Development Commission, United States Fish and Wildlife Service, California Department of Fish and Wildlife, and the San Francisco Regional Water Quality Control Board.

37 The schedule calls for FOG Studio to complete contract documents by July 18, 2014, and for the project to be advertised for bid on July 22, Staff anticipates receiving bids on August 14, After review and analysis of all bids received, staff will make a recommendation to the City Manager to award the construction contract to the lowest responsible and responsive bidder, per the direction given by the City Council on June 17, This schedule will allow for construction to begin in September, consistent with environmental requirements. The Phase III project is estimated to cost $2,500,000. Staff recommends that the City Council approve the Plans and Specifications for Cooley Landing Park, Phase III, Education Center, and authorize advertisement of the project for bid. In addition, staff recommends that the City Council authorize the City Manager to accept and analyze the bids received, award a construction contract to the lowest responsive and responsible bidder and establish a change order contingency of up to 10% of the bid amount, for a total project budget not-to-exceed $2,650,000. As noted during the June 17 th update to the City Council, maintaining the schedule start date in September is critical to meeting environmental regulations concerning construction and noise requirements that could impact the California clapper rails that nest nearby. Fiscal Impact There is no fiscal impact to the General Fund associated with this action. The Cooley Landing Park Project, Phases II-V, is funded by a $5 Million Grant from the California Department of Parks and Recreation Proposition 84 program. Expenses for project management, design, and construction are eligible for reimbursement by the grant.

38 RESOLUTION NO. RESOLUTION OF THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO APPROVING THE PLANS AND SPECIFICATIONS FOR COOLEY LANDING PARK PHASE III, EDUCATION CENTER PROJECT, AUTHORIZING THE PROJECT TO BE ADVERTISED FOR BID AND AUTHORIZING THE CITY MANAGER TO ACCEPT AND ANALYZE THE BIDS RECEIVED, AWARD A CONSTRUCTION CONTRACT TO THE LOWEST RESPONSIVE AND RESPONSIBLE BIDDER AND ESTABLISH A CHANGE ORDER CONTINGENCY OF UP TO 10% OF THE BID AMOUNT, FOR A TOTAL PROJECT BUDGET NOT-TO-EXCEED $2,650,000 WHEREAS, the Cooley Landing Phase I improvements were completed in summer of 2012 and the park was opened to the public in July; and WHEREAS, On September 17, 2013, the City Council approved the selection of FOG Studio Architects and authorized the City Manager to enter into an agreement for architectural services for Cooley Landing Park Phase III, the Education Center facility; and WHEREAS, on May 23, 2014, the City issued a 95% complete progress set of the contract documents for the Cooley Landing Park Phase III Education Center Project for review by several agencies having jurisdiction over this project; and WHEREAS, on June 17, 2014, the City Council directed the City Manager to return to the City Council on July 15, 2014 for approval of an award process for the construction contract by which the City Manager would have the authority to award the construction contract to the lowest responsive and responsible bidder during the Council s recess in order to meet regulations designed to protect the endangered California clapper rail and the salt marsh harvest mouse that limit construction to September through January of each year; and WHEREAS, the 95% complete contract documents for the Phase III project have been reviewed and approved with minor corrections by East Palo Alto Community Development Department, Midpeninsula Regional Open Space District, Menlo Park Fire Protection District, East Palo Alto Sanitary District, San Francisco Bay Conservation and Development Commission, United States Fish and Wildlife Service, California Department of Fish and Wildlife, and the San Francisco Regional Water Quality Control Board; NOW, THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO HEREBY: 1) Approves the Plans and Specifications for Cooley Landing Park, Phase III, Education Center and authorizes advertisement of the project for bid; and

39 2) Authorizes the City Manager to accept and analyze the bids received, award a construction contract to the lowest responsive and responsible bidder and establish a change order contingency of up to 10% of the bid amount, for a total project budget not-to-exceed $2,650,000. PASSED AND ADOPTED this 15th day of July, 2014, by the following vote: AYES: NAYS: ABSENT: ABSTAIN: SIGNED: Laura Martinez, Mayor ATTEST: APPROVED AS TO FORM: Nora Pimentel, Deputy City Clerk John A. Nagel, City Attorney

40 PROCLAMATION Consent Calendar Item: # 4H.1 In recognition of your effort to participate in the San Mateo County: As Fresh as it Gets campaign, begun by the San Mateo County/Silicon Valley Convention and Visitor s Bureau and San Mateo Farm Bureau with support of the County of San Mateo, and in cooperation with the San Mateo County Harbor District: WHEREAS, Quattro at Four Seasons Silicon Valley has made it a point to buy and serve produce from local San Mateo County growers, and/or seafood caught off of San Mateo County s coastline, and/or local goat cheese and/or beer and wine made in the County; and WHEREAS, Quattro has supported the county s farmers, fisherman and wine and beer makers, to position San Mateo County as a world-class destination for culinary tourism; and WHEREAS, Quattro has helped to educate locals about the area s incredible fresh products by serving them; and WHEREAS, the efforts of Quattro have earned it a San Mateo County: As Fresh As it Gets Award from the San Mateo County/Silicon Valley Convention & Visitors Bureau and San Mateo County Farm Bureau, in cooperation with the San Mateo County Harbor District; and WHEREAS, the San Mateo County: As Fresh as it Gets program is a model for the entire state; THEREFORE, BE IT RESOLVED that the City of East Palo Alto recognizes Quattro for its outstanding achievement, fine cuisine and support of our County s local food and beverage producers. Date signed: July 3, 2014 HONORABLE MAYOR LAURA MARTINEZ Attested by: Nora Pimentel, CMC Deputy City Clerk

41 Consent Calendar Item: #4H.2 PROCLAMATION A PROCLAMATION OF THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO DECLARING SATURDAY, JULY 26, 2014 COLLARD GREENS CULTURAL FESTIVAL DAY IN THE CITY OF EAST PALO ALTO Whereas, the Collard Greens Cultural Festival was initiated by the Shule Mandela Academy (formerly School of Wisdom and Knowledge) in the year 1998; and Whereas, the Collard Green s history is intertwined with the survival of the African-American ancestors of our great City, as it was a source that provided a wealth of health-oriented staples. The Collard Greens Cultural Festival was created to reflect that heritage in the hope that a great tradition would begin and will last beyond the 21 st century; and Whereas, the City of East Palo Alto, upon its incorporation, became a vast and diversely cultural City, and recognizes the multi-ethnic community that has contributed to its general welfare. Now therefore, be it resolved and proclaimed that Saturday, July 26, 2014 be recognized as Collard Greens Festival Day in the City of East Palo Alto. Date signed: July 15, 2014 HONORABLE MAYOR LAURA MARTINEZ Attested by: Nora Pimentel, CMC Deputy City Clerk

42 Consent Calendar Item: #4H.3 PROCLAMATION A PROCLAMATION OF THE CITY OF EAST PALO ALTO PROCLAMING AUGUST 5, 2014 AS NATIONAL NIGHT OUT IN THE CITY OF EAST PALO ALTO WHEREAS, the City of East Palo Alto is committed to partnering with its residents to maintain safe neighborhoods with high levels of community engagement and low criminal activity; and WHEREAS, National Night Out is a unique opportunity to join cities and towns across the country in promoting cooperative police and community crime prevention efforts; and WHEREAS, the first Tuesday in August has been designated as the official National Night Out ; and WHEREAS, leaders in eleven East Palo Alto neighborhoods have stepped forward to host community block parties in an effort to strengthen neighborhood spirit and celebrate local efforts to fight crime; and WHEREAS, the Drew Medical Foundation has graciously donated funds to augment City funds in support of the community block parties; and WHEREAS, all residents in the City of East Palo Alto are encouraged to support National Night Out by turning on their front porch lights between the hours of 5:00 p.m. and 9:00 p.m. on August 5, NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of East Palo Alto that Tuesday, August 5, 2014 shall be proclaimed National Night Out in East Palo Alto and residents are encouraged to join East Palo Alto officials in supporting this worthwhile event. Signed July 15, 2014 Attested by: Honorable Mayor Laura Martinez Nora Pimentel, CMC Deputy City Clerk

43 CITY OF EAST PALO ALTO OFFICE OF THE CITY MANAGER 2415 UNIVERSITY AVENUE EAST PALO ALTO, CA Public Hearing Item: #8A City Council Agenda Report Date: July 15, 2014 To: Via: From: Subject: Honorable Mayor and Members of the City Council Magda A. González, City Manager John Doughty, Community and Economic Development Director Affordable Housing Impact Fee Recommendation Upon closing of the public hearing, adopt a resolution adopting the Affordable Housing Nexus Study and establishing an Affordable Housing Impact Fee. Alignment with City Council Strategic Plan This recommendation is primarily aligned with: Priority #2: Enhance Economic Vitality Priority #4: Improve Public Facilities and Infrastructure Priority #6: Create a Healthy and Safe Community Background In 2013 and 2014, the City of East Palo Alto retained two consultants to separately study the impact of (1) market-rate housing on the demand for affordable housing; and (2) commercial development on infrastructure, such as parks, and open space. The goal of these two studies was to quantify impacts of residential and commercial development so that the City could fashion fees that would comply with the Mitigation Fee Act (Government Code ) and that would be reasonably related to the impact of development. David Rosen & Associates ( DRA ) prepared the first of these two fee studies, titled the Affordable Housing Nexus Study ( Affordable Housing Nexus Study ), to quantify the impact of market-rate housing on the demand for affordable housing. Originally circulated as a draft in October 2013, DRA updated the Affordable Housing Nexus Study in 2014 to reflect recent market conditions, consisting of a 28% increase in the median home price and a 10% rise in rents.

44 within the zip code. (A final version is attached hereto as Attachment 1 for City Council consideration and adoption.) The resulting fee would apply to all market-rate housing identified in the Affordable Housing Program. In December 2014, AECOM Sustainable Economics Group ( AECOM ) prepared a Development Impact Fee Program Nexus Study ( Development Nexus Study ) to evaluate how new development could contribute its fair share to fund infrastructure improvements, including parks and recreation, public facilities, water infrastructure, storm water drainage, road improvements, and streetscapes. This study was done so that the full impact that new developments will have on the City could be evaluated and the City Council could determine whether the imposition of the housing impact fee and other development fees would have a negative impact on new development (see discussion on combined fees below). Following a duly noticed public hearing held on July 1, 2014, the City Council unanimously voted to waive first reading and introduce an ordinance ( Affordable Housing Program ), and, simultaneously, to repeal the prior ordinance ( Below Market Housing Program ). The City Council also directed staff to prepare a draft resolution to adopt an affordable housing impact fee consistent with DRA s recommendations, as set forth in the Affordable Housing Nexus Study. In sum, the new ordinance imposes a fee on new for sale and rental development in order to mitigate the impact those developments have on affordable housing in the City, though it also allows a developer the option of constructing affordable units instead of paying the fee. Analysis The Affordable Housing Nexus Study determined the maximum supportable impact fee based on four housing prototypes commonly in existence in the City: 1) single family infill; 2) owner townhomes; 3) stacked flat apartments; and 4) stacked flat condominiums with underground parking. Staff recommends the City Council set the affordable housing impact fee at the maximum supportable range ($22.70 to $44.72), which varies depending on the housing prototype, as set forth below in Table 1. TABLE 1: [PROPOSED] AFFORDABLE HOUSING IMPACT FEES Type Description Fee (per net square foot of market-rate unit) Prototype 1 Single Family Infill $23.95 Prototype 2 Owner Townhomes $23.00 Prototype 3 Rental Housing $22.70 Prototype 4 Stacked Flat Condos $22.70 (inside RBD) Prototype 4 Stacked Flat Condos $44.72 (outside RBD) Source: David Paul Rosen & Associates, City of East Palo Alto Affordable Housing Nexus Study (July 10, 2014); Memorandum re: Economic Impact of Proposed RBD Development Fees (March 24, 2014). AECOM has calculated the maximum supportable development impact fee at two levels, depending on whether development occurs inside or outside the boundaries of the Ravenswood Business District ( RBD ): $3.14 (inside the RBD) and $12.66 (outside the RBD).

45 Although the City Council had the discretion to combine these two fees (i.e., affordable housing and development impact fees), Staff had expressed concern that a combined fee could be detrimental to development efforts. In particular, Staff had thought a combined fee would be too high to support the types of development envisioned in the Ravenswood/4 Corners Transit Oriented Development Specific Plan Area. The City Council, therefore, requested DRA to complete a supplemental analysis to determine if charging the combined fee would dissuade developers from investing in the RBD. Accordingly, DRA prepared the March 24, 2014 memorandum entitled Economic Impact of Proposed RBD Development Impact Fees on East Palo Alto Housing Prototypes, attached hereto as Attachment 2, the findings of which demonstrate that DRA determined that only one type of housing stacked flat condominiums (Prototype 4) would be rendered not financially feasible if the fees were combined. Prototype 4 is envisioned as a way of creating a vibrant new downtown along Bay Road, and would be constructed in the three newly established zoning districts (4 Corners Gateway, Bay Road Central, and Urban Residential). While a $44.72 impact fee for prototype 4 is supportable based on the increased demand for affordable housing, in order to avoid the negative impact the combined fees would have on this type of development along Bay Road, so as to not discourage development of this prototype, and to ensure that the City s long term vision is realized, Staff is recommending that a affordable housing impact fee of $22.70 per square foot within the RBD and a fee of $44.72 per square foot outside the RBD be adopted for stacked flat condos. Fiscal Impact Adopting an Affordable Housing Impact Fee would have no impact on the City s General Fund. Rather, affordable housing that would serve moderate-income, low-income, very low-income, and extremely low-income households would be financed via the Affordable Housing Impact Fee, a special (restricted) revenue source held in a separate fund titled the City Affordable Housing Fund. Attachments 1. Final City of East Palo Alto Affordable Housing Nexus Study, dated July 10, 2014 (copies available online, in the library and on file in the Office of the City Clerk) 2. David Rosen & Associates Memorandum, March 24, 2014

46 RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO ESTABLISHING AN AFFORDABLE HOUSING IMPACT FEE WHEREAS, the City of East Palo Alto adopted a Housing Element in 2010 which specifies that the City should modify its Below Market Rate Housing Program ordinance (currently the Affordable Housing Program ) to ensure compliance with new law; and WHEREAS, the City Council of the City of East Palo adopted the Affordable Housing Program Ordinance, which authorized an affordable housing impact fee to be imposed upon the construction of new market-rate for sale and rental development; and WHEREAS, the Affordable Housing Program Ordinance did not establish the fee, but authorized the City Council of the City of East Palo Alto to adopt a fee by resolution; and WHEREAS, the City of East Palo Alto retained David Rosen & Associates ( DRA ) to complete an Affordable Housing Nexus Study to comply with the Mitigation Fee Act, and in particular, to quantify the impact of market-rate housing on the demand for affordable housing; and WHEREAS, Affordable Housing Nexus Study was completed in October 2013, and updated in March 2014 to reflect recent market conditions, and a final version was provided to the City Council of East Palo Alto for consideration prior to and adoption at the July 15, 2014 meeting; and WHEREAS, the Affordable Housing Nexus Study determined that the maximum supportable Affordable Housing Impact Fees for four housing prototypes commonly in existence in the City of East Palo Alto, ranging from $22.70 to $44.72; and WHEREAS, no interested parties had filed written requests with the City for mailed notice of meetings on new or increased fees or service charges; and WHEREAS, in accordance with the Government Code Section 66016, the City made available to the public data indicating the amount of proposed Affordable Housing Impact Fee for public review and comment for 10 days prior to the public hearing at which this Resolution was adopted; and WHEREAS, 10-days advance notice of the public hearing at which this Resolution was adopted was given by publication in accordance with Section 6062a of the Government Code; and WHEREAS, the City Council of the City of East Palo, having considered the results of the Affordable Housing Nexus Study and public testimony, has now concluded the appropriate amount of the affordable housing impact fees.

47 NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of East Palo Alto as follows: 1. Adoption of Affordable Housing Nexus Study. The final Affordable Housing Nexus Study, dated July 10, 2014, is hereby adopted as the basis for the Affordable Housing Impact Fees. Pursuant to Section 66001(d) of the Government Code, the City Council of the City of East Palo Alto hereby finds: a. The purpose of the Affordable Housing Impact Fees is to charge a market-rate developer its fair share of the cost of providing affordable housing that can be attributed to market-rate development; b. The Affordable Housing Impact Fees shall be expended exclusively for provision of affordable units in the City of East Palo Alto provision of supportive services, or for the costs of administering this Affordable Housing Program Ordinance; c. There is a reasonable relationship between the need for affordable housing and market-rate development because such development increases the demand for and exacerbates the shortage of affordable housing; d. There is a reasonable relationship between expenditure of the Affordable Housing Impact Fees and market-rate development because such expenditure will help satisfy the increased demand for affordable housing caused by marketrate development; and e. The amount of the Affordable Housing Impact Fees reflects the reasonable cost of providing affordable units, including supportive services and costs of administration, and is proportionate to the cost attributable to market-rate development. 2. Adoption of Fee. The Affordable Housing Impact Fees set forth in Exhibit A, which is attached hereto and incorporated herein by this reference, are hereby adopted and established; and 3. Effective Date. Pursuant to Section of the Government Code, the Affordable Housing Impact Fees set forth in Exhibit A and established herein will become effective sixty (60) days from the date of passage of this Resolution.

48 PASSED AND ADOPTED this 15 day of July 2014, by the following vote: AYES: NAES: ABSENT: ABSTAIN: SIGNED: Laura Martinez, Mayor ATTEST: APPROVED AS TO FORM: Nora Pimentel, Deputy City Clerk John A. Nagel, City Attorney

49 EXHIBIT A AFFORDABLE HOUSING IMPACT FEES Type Description Fee (per net square foot of market-rate unit) Prototype 1 Single Family Infill $23.95 Prototype 2 Owner Townhomes $23.00 Prototype 3 Rental Housing $22.70 Prototype 4 Stacked Flat Condos $22.70 (inside the RBD*) Prototype 4 Stacked Flat Condos $44.72 (outside the RBD*) * RBD refers to the Ravenswood Business District Area boundaries delineated by the Development Impact Fee Program Nexus Study prepared by AECOM Sustainable Economics Group in December 2013.

50 ATTACHMENT 1 [This page is intentionally left blank.]

51 March 24, 2014 To: From: Subject: Mr. John Doughty Ms. Nora Lake-Brown, Mr. David Rosen David Paul Rosen & Associates Economic Impact of Proposed RBD Development Impact Fees on East Palo Alto Housing Prototypes This memo summarizes David Paul Rosen & Associates (DRA s) analysis of the potential economic impact of proposed Ravenswood Business District (RBD) Specific Plan Area development impact fees on the East Palo Alto housing prototypes developed for DRA s 2013 Affordable Housing Nexus Study. Development cost and income assumptions for DRA s townhome (Prototype #2), rental apartment (Prototype #3) and stacked flat condominium (Prototype #4) prototypes were updated from 2013 to 2014 using the following data and sources: 1. Dataquick Information Systems (increase in median home price for the zip code from January 2013 to January 2014 of 28.8%); 2. Zillow (increase in median home price for San Mateo County February 2013 to February 2014 of 16%); 3. Cassidy Turley Apartment Market Report, San Mateo County, Fourth Quarter, 2013 (increase in average rent from fourth quarter 2012 to fourth quarter 2013 of 10%); and 4. Engineering News Record (increase in construction cost index from March 2013 to March 2014 of 2.6%). 5. Cassidy Turley report noted above for 4.66% apartment capitalization rate in the fourth quarter Development impact fees for the RBD were analyzed under the following three scenarios: 1. AECOM recommended development impact fees for townhome and multifamily housing units in the RBD from Draft City of East Palo Alto Development Impact Fee Program Nexus Study, dated November ;

52 Mr. John Doughty March 24, 2014 Page 2 of 3 2. DRA s estimate of the development impact fees for the RBD using AECOM s methodology and assumption but with a 20% reduction in the amount of land use development occurring in the RBD; and 3. AECOM s recommended RBD development impact fees PLUS an affordable housing nexus fee of $22 per building square foot. The potential economic impact of the above scenarios was analyzed using a land residual analysis approach, which subtracts total development costs for a project from that project s total income or market value to determine the residual value generated to the land. For ownership prototypes, project value is determined by units sales prices. For the apartments, value is estimated by capitalizing estimated net operating income by a current capitalization rate. By comparing the residual land value of the developments without impact fees to those with impact fees, DRA estimated the impact of the fees on the project s financial performance. By comparing residual land values to estimated market land prices, it is possible to gauge the potential impact of the fees on project financial viability. Summary of Findings Tables 1 and 2 summarize the land residual analysis of the three development impact fee scenarios described above. Table 1 shows the land residual analysis for Scenario A, assuming that home sales prices for the townhome and stacked flat condo prototypes increased at the historical increase in home prices for zip code (which contains East Palo Alto) from 2013 to 2014 of 28.8 percent. Scenario B shows the same analysis assuming that home sales prices for the townhome and stacked flat condo prototypes increased at the lower increase in home prices in San Mateo County as a whole from 2013 to 2014 of 16 percent. Both scenarios increase apartment rents by 10% over DRA s 2013 study based on the countywide increase in apartment rents over the past year. Land sales data analyzed in DRA s 2013 study showed land prices ranging from a low of $17 per square foot to a high of $290 per square foot, with a median price per square foot of $49, and an average price per square foot of $83.

53 Mr. John Doughty March 24, 2014 Page 3 of 3 The results of the land residual analysis indicate that under Scenario A, due to the substantial increase in home prices (28.8%) and rents (10%), all three prototypes generate land values within the range of recent land sales. Only in the case of Prototype #4, stacked flat condos with structured parking, does the land value fall below the trading range with the highest impact fee of $39,700 per unit (AECOM recommended fee plus affordable housing nexus fee of $22 per square foot). In DRA s 2013 report, Prototypes #2 and #3 generated land values that were negative or substantially below the trading range of land values, indicating that they were not financially feasible at that time. The recent price increase in the residential market has significantly improved the financial feasibility of these prototypes. Under Scenario B, with the more moderate increase in home prices (16%), Prototypes #1 still generates residual land values within the trading range, while the land values for Prototype #3 fall below that of the lowest market land sales comparable. Tables 3 and 4 summarize the prototypes and the assumptions used in the land residual analysis. Table 5 through 14 show DRA s assumptions and calculations of the RBD development impact fees assuming a 20% reduction in developed land and building areas from that used in the AECOM study. DRA s estimated RBD development fees with the 20% reduction in land use shown in the attached Table 14 can be compared to AECOM s recommended development impact fees in Table 8 of the AECOM report. Attachments: Economic Impact Analysis Tables

54 Table 1 Land Residual Analysis City of East Palo Alto Economic Impact Analysis RBD Development Impact Fees Scenario A: Countywide Increase in Home Prices and Rents Since 2013 (1) 2014 Prototype #2 Prototype #3 Prototype #4 Owner Rental Owner Owner Townhomes Stacked Flat Apts. Stacked Flats Condos Podium Parking Underground Parking Assumptions Number of Housing Units Total Net SF Bldg Area 53,000 48, ,778 Net SF Site Area 217, , ,800 Floor Area Ratio Ann. Net Operating/Sales Income (000's) (1) $23,005 $1,222 $45,911 Assumed Capitalization Rate: (3) N/A 4.66% N/A Capitalized Value/Sales Value (000's) (4) $23,005 $26,233 $45,911 Total Development Costs (000's) with No Fees $11,202 $16,807 $38,805 Fee Amounts (Per DU) a. AECOM Recommended RBD Fee (5) $20,592 $17,525 $17,525 b. RBD Fee with 20% Reduction in Land Use (DRA Est.) (6) $27,666 $23,897 $23,897 c. Affordable Housing Nexus Fee at $22/SF (7) $23,320 $21,242 $22,171 d. AECOM Recommended RBD Fee Plus $43,912 $38,767 $39,696 Affordable Housing Nexus Fee at $22/SF (7) Total Develop. Costs Except Land (000's) (2) Including Development Impact Fees: 1. No Fee $11,202 $16,807 $38, AECOM Recommended RBD Fee (5) $12,231 $17,683 $40, RBD Fee with 20% Reduction in Land Use (DRA Est.) (6) $12,585 $18,001 $41, AECOM Recommended RBD Fee PLUS $13,397 $18,745 $42,775 Affordable Housing Nexus Fee at $22/SF Residual Land Value (000's) Including Development Impact Fees: 1. No Fee $11,803 $9,426 $7, AECOM Recommended RBD Fee (5) $10,774 $8,550 $5, RBD Fee with 20% Reduction in Land Use (DRA Est.) (6) $10,420 $8,231 $4, AECOM Recommended RBD Fee PLUS $9,608 $7,488 $3,136 Affordable Housing Nexus Fee at $22/SF Residual Land Value Per SF Site Area Including Development Impact Fees: 1. No Fee $54.19 $43.28 $ AECOM Recommended RBD Fee (5) $49.47 $39.26 $ RBD Fee with 20% Reduction in Land Use (DRA Est.) (6) $47.84 $37.79 $ AECOM Recommended RBD Fee PLUS $44.11 $34.38 $14.40 Affordable Housing Nexus Fee at $22/SF Percent Reduction in Residual Land Value Including Development Impact Fees: 1. No Fee 0.0% 0.0% 0.0% 2. AECOM Recommended RBD Fee (5) 8.7% 9.3% 24.7% 3. RBD Fee with 20% Reduction in Land Use (DRA Est.) (6) 11.7% 12.7% 33.6% 4. AECOM Recommended RBD Fee PLUS 18.6% 20.6% 55.9% Affordable Housing Nexus Fee at $22/SF (1) Equals sales price per square foot for owner prototypes from the 2013 DRA study, escalated by 28.8% based on the percentage increase in the median home price for zip code from January 2013 to January 2014 from Dataquick. Equals annual rent per square foot for the renter prototype from the 2013 DRA study, escalated by 10% based on the increase in the average rent for San Mateo County from fourth quarter 2013 to fourth quarter 2014 from Cassidy Turley. (2) Equals total development cost, excluding land, for each prototype from 2013 DRA study, Appendix Tables A-6 through A-9, escalated at 2.6% based on the increase in the Engineering News Record Construction Cost Index from March 2013 to March (3) Source: Cassidy Turley Commercial Real Estate Services," San Francisco Bay Area Apartment Market Report", Fourth Quarter (4) For renter housing, equals net operating income divided by capitalization rate for apartment land use. For owner housing, equals equals total sales prices for units in prototype. (5) Recommended RBD development impact fees for townhomes and multifamily housingunits from "Draft City of East Palo Alto Development Impact Fee Program Nexus Study," November 27, (6) Using the methodology and assumptions from the 2013 AECOM study, DRA adjusted the recommended RBD development impact fees assuming 20% fewer housing units and building area in the RBD compared to the original AECOM projections. (7) Recommended affordable housing nexus fee per square foot from 2013 DRA Affordable Housing Nexus Study for development in the RBD. Source: DRA.

55 Table 1 Land Residual Analysis City of East Palo Alto Economic Impact Analysis RBD Development Impact Fees Scenario B: Zip Code Increase in Home Prices and Rents Since 2013 (1) 2014 Prototype #2 Prototype #3 Prototype #4 Owner Rental Owner Owner Townhomes Stacked Flat Apts. Stacked Flats Condos Podium Parking Underground Parking Assumptions Number of Housing Units Total Net SF Bldg Area 53,000 48, ,778 Net SF Site Area 217, , ,800 Floor Area Ratio Ann. Net Operating/Sales Income (000's) (1) $20,719 $1,222 $41,348 Assumed Capitalization Rate: (3) N/A 4.66% N/A Capitalized Value/Sales Value (000's) (4) $20,719 $26,233 $41,348 Total Development Costs (000's) with No Fees $11,202 $16,807 $38,805 Fee Amounts (Per DU) a. AECOM Recommended RBD Fee (5) $20,592 $17,525 $17,525 b. RBD Fee with 20% Reduction in Land Use (DRA Est.) (6) $27,666 $23,897 $23,897 c. Affordable Housing Nexus Fee at $22/SF (7) $23,320 $21,242 $22,171 d. AECOM Recommended RBD Fee Plus $43,912 $38,767 $39,696 Affordable Housing Nexus Fee at $22/SF (7) Total Develop. Costs Except Land (000's) (2) Including Development Impact Fees: 1. No Fee $11,202 $16,807 $38, AECOM Recommended RBD Fee (5) $12,231 $17,683 $40, RBD Fee with 20% Reduction in Land Use (DRA Est.) (6) $12,585 $18,001 $41, AECOM Recommended RBD Fee PLUS $13,397 $18,745 $42,775 Affordable Housing Nexus Fee at $22/SF (7) Residual Land Value (000's) Including Development Impact Fees: 1. No Fee $9,517 $9,426 $2, AECOM Recommended RBD Fee (5) $8,487 $8,550 $ RBD Fee with 20% Reduction in Land Use (DRA Est.) (6) $8,134 $8,231 $ AECOM Recommended RBD Fee PLUS $7,321 $7,488 -$1,427 Affordable Housing Nexus Fee at $22/SF (7) Residual Land Value Per SF Site Area Including Development Impact Fees: 1. No Fee $43.70 $43.28 $ AECOM Recommended RBD Fee (5) $38.97 $39.26 $ RBD Fee with 20% Reduction in Land Use (DRA Est.) (6) $37.34 $37.79 $ AECOM Recommended RBD Fee PLUS $33.61 $34.38 ($6.55) Affordable Housing Nexus Fee at $22/SF (7) Percent Reduction in Residual Land Value Including Development Impact Fees: 1. No Fee 0.0% 0.0% 0.0% 2. AECOM Recommended RBD Fee (5) 10.8% 9.3% 68.9% 3. RBD Fee with 20% Reduction in Land Use (DRA Est.) (6) 14.5% 12.7% 94.0% 4. AECOM Recommended RBD Fee PLUS 23.1% 20.6% 156.1% Affordable Housing Nexus Fee at $22/SF (7) (1) Equals sales price per square foot for owner prototypes from the 2013 DRA study, escalated by 16% based on the percentage increase in the median home price for San Mateo County from Zillow. Equals annual rent per square foot for the renter prototype from the 2013 DRA study, escalated by 10% based on the increase in the average rent for San Mateo County from fourth quarter 2013 to fourth quarter 2014 from Cassidy Turley. (2) Equals total development cost, excluding land, for each prototype from 2013 DRA study, Appendix Tables A-6 through A-9, escalated at 2.6% based on the increase in the Engineering News Record Construction Cost Index from March 2013 to March (3) Source: Cassidy Turley Commercial Real Estate Services," San Francisco Bay Area Apartment Market Report", Fourth Quarter (4) For renter housing, equals net operating income divided by capitalization rate for apartment land use. For owner housing, equals equals total sales prices for units in prototype. (5) Recommended RBD development impact fee froom (6) Using the methodology and assumptions from the 2013 AECOM study, DRA adjusted the recommended RBD development impact fees assuming 20% fewer housing units and building area in the RBD compared to the original AECOM projections. (7) Recommended affordable housing nexus fee per square foot from 2013 DRA Affordable Housing Nexus Study for development in the RBD. Source: DRA.

56 Table 3 Housing Prototype Projects City of East Palo Alto Economic Impact Analysis RBD Development Impact Fees 2014 Prototype #2 Prototype #3 Prototype #4 Stacked Flat Apts. Stacked Flats Condos PROTOTYPE Owner Townhomes Podium Parking Underground Parking Tenure Owner Rental Owner Unit Count 50 Units 50 Units 100 Units Type of Product Townhomes Stacked flats over podium parking Stacked flats with subterranean and structured parking Number of Stories/ 2 Stories Type of Parking Garages Podium Subterranean Construction Type Type V Type V Type V Density (DU's/Net Acre) Land Area (Acres) Units by Bedroom Count One Bedroom Two Bedroom/1 Bath Two Bedroom/2 Bath Three Bedroom Four Bedroom Percent of Units by Bedroom Count One Bedroom 0% 66% 20% Two Bedroom/1 Bath 0% 0% 0% Two Bedroom/2 Bath 20% 34% 70% Three Bedroom 80% 0% 10% Four Bedroom 0% 0% 0% Unit Size (Net Square Feet) One Bedroom Two Bedroom/1 Bath Two Bedroom/2 Bath 900 1, Three Bedroom 1,100 1,350 Four Bedroom Average Unit Square Feet 1, Building Square Feet Net Living Area 53,000 43,450 90,700 Community Space 3,000 15,000 Total Net Bldg. Square Feet 53,000 46, ,700 Number of Parking Spaces Parking Spaces Per Housing Unit Source: City of East Palo Alto; David Paul Rosen & Associates

57 Table 4 Land Residual Analysis Assumptions City of East Palo Alto Economic Impact Analysis RBD Development Impact Fees 2014 COST/INCOME BY LAND USE Prototype #2 Prototype #3 Prototype #4 Unit of Owner Rental Owner Measure Owner Townhomes Stacked Flat Apts. Stacked Flats Condos Podium Parking Underground Parking ASSUMPTIONS Net Living Area (Square Feet) 53,000 43,450 90,700 Rental EGI or Net Sales Proceeds Scenario A (1) Net SF Living Area $ $33.49 $ Scenario B (2) Net SF Living Area $ $33.49 $ Total Development Cost (3) Net SF Living Area $ $ $ Operating Expenses % of Gr. Inc. N/A 16.0% N/A TOTAL DEVELOPMENT COSTS (000'S) $11,202 $16,807 $38,805 NET (OPERATING OR SALES) INCOME (000's) Scenario A Effective Gross Income/Net Sales Proceeds $23,005 $1,455 $45,911 Less: Operating Expense $0 ($233) $0 Net Operating or Sales Income (000's) $23,005 $1,222 $45,911 Net Operating or Sales Income Per SF $ $28.13 $ Scenario B Effective Gross Income/Net Sales Proceeds $20,719 $1,455 $41,348 Less: Operating Expense $0 ($233) $0 Net Operating or Sales Income (000's) $20,719 $1,222 $41,348 Net Operating or Sales Income Per SF $ $28.13 $ (1) Equals sales price per square foot for owner prototypes from the 2013 DRA study, escalated by 28.8% based on the percentage increase in the median home price for zip code from January 2013 to January 2014 from Dataquick. Equals annual rent per square foot for the renter prototype from the 2013 DRA study, escalated by 10% based on the increase in the average rent for San Mateo County from fourth quarter 2013 to fourth quarter 2014 from Cassidy Turley. (2) Equals sales price per square foot for owner prototypes from the 2013 DRA study, escalated by 16% based on the percentage increase in the median home price for San Mateo County from Zillow. Equals annual rent per square foot for the renter prototype from the 2013 DRA study, escalated by 10% based on the increase in the average rent for San Mateo County from fourth quarter 2013 to fourth quarter 2014 from Cassidy Turley. (3) Equals total development cost, excluding land, for each prototype from 2013 DRA study, Appendix Tables A-6 through A-9, escalated at 2.6% based on the increase in the Engineering News Record Construction Cost Index from March 2013 to March (4) Source: Cassidy Turley Commercial Real Estate Services," San Francisco Bay Area Apartment Market Report", Fourth Quarter Sources: David Paul Rosen & Associates, "City of East Palo Alto Affordable Housing Nexus Study," October 3, 2013; Cassidy Turley Commercial Real Estate Services; Engineering News Recode Construction Cost Index; Dataquick; RealFacts; DRA.

58 Table 5 Population and Employment Projections, 2010 to 2035 City of East Palo Alto Economic Impact Analysis Population Growth Employment Growth Service Population (1) Service Population Per DU 25-Year Planning Horizon City of East Palo Alto 9,875 7,814 13, RBD 2,766 4,851 5,192 3 (1) Equals population growth plus 50% of employment growth. Source: Table 1, AECOM, "City of East Palo Alto Development Impact Fee Program Nexus Study," November 27, 2013; City of East Palo Alto; David Paul Rosen & Associates.

59 Table 6 Development Projections (Net New Growth) City of East Palo Alto Economic Impact Analysis 2013 Land Area Buildings Population Density With 20% With 20% Density (DU/Acre or (Persons/DU) or Original (1) Reduction (2) Original (1) Reduction (2) FAR) Employment Density 25-Year Planning Horizon City of East Palo Alto Acreage Acreage Number Number Density (DU/A) Housing Units N/A N/A 2,371 2,371 N/A Land SF Land SF Built SF Built SF FAR Office N/A N/A 1,653,000 1,653,000 N/A Industrial N/A N/A 240, ,000 N/A R&D N/A N/A 156, ,000 N/A Retail N/A N/A 353, ,000 N/A RBD Acreage Acreage Number Number Density (DU/A) Townhomes Multi-Family Housing Land SF Land SF Built SF Built SF FAR Office 901, ,800 1,250,000 1,000, Industrial 433, , , , ,820 R&D 217, , , , , Year Planning Horizon RBD Acreage Acreage Number Number Density (DU/A) Townhomes Multi-Family Housing , Land SF Land SF Built SF Built SF FAR Office 1,192, ,600 1,568,922 1,255, Industrial 1,804,000 1,443, , , R&D 1,281,245 1,024, , , Retail 328, , , , (1) From Table 2 of AECOM study. (2) Assumes 20% reduction in land and building area development from original AECOM projections in Table 2 of AECOM study. Source: Table 2, AECOM, "City of East Palo Alto Development Impact Fee Program Nexus Study," November 27, 2013; City of East Palo Alto; David Paul Rosen & Associates.

60 Table 7 Maximum Supportable Nexus Fees City of East Palo Alto Residential Nexus Fee Analysis 2013 Project Costs Funded by Committed Total Develop. Fees Funds Project Cost Parks and Trails Citywide Fee Parks & Trails $45,985,100 $5,042,000 $51,027,100 Community Facilities $47,080,000 $0 $47,080,000 Water Supply (1) $4,392,000 $1,008,000 $5,400,000 RBD Water Distribution $4,213,300 $625,000 $4,838,300 Storm Drain $11,488,372 $3,925,000 $15,413,372 Water Storage $5,000,000 $0 $5,000,000 Road Infrastructure $35,878,900 $7,500,000 $43,378,900 Streetscape $1,927,100 $2,500,000 $4,427,100 Sanitary $3,441,620 $0 $3,441,620 (1) Based on capacity of new water supply infrastructure of 1,455,357 gallons per day (gpd). Source: AECOM, "City of East Palo Alto Development Impact Fee Program Nexus Study," November 27, 2013; City of East Palo Alto; David Paul Rosen & Associates.

61 Table 8 RBD Water Demand City of East Palo Alto Residential Nexus Fee Analysis 2013 Acres/Land SF Impervious Acres (1) Number of DU or Bldg. SF Demand (gpd per DU/SF) Total Demand Impervious Acres per DU or Built SF/Imperv. Acre Townhomes , Multi-Family Housing , Office 953, ,255, ,065 63,705 Industrial 1,443, , ,200 26,159 R&D 1,024, , ,056 26,972 Retail 262, , ,768 19,330 Total ,400 (1) At 90% of total acres. Source: Table C-3, AECOM, "City of East Palo Alto Development Impact Fee Program Nexus Study," November 27, 2013;

62 Table 9 RBD Water Distribution Fee City of East Palo Alto Residential Nexus Fee Analysis 2013 GPD per DU/SF Fee Per Unit/SF Demand for water distribution infrastructure (gpd) 894,400 Total cost for water distribution infrastructure $4,213,300 Water Supply Cost w/ 4% Admin Fee $4,381,832 Cost per unit (gpd) $4.90 Townhomes 260 $1, Multi-Family Housing 203 $ Office 0.11 $0.54 Industrial 0.39 $1.91 R&D 0.38 $1.86 Retail 0.16 $0.78 Source: AECOM, "City of East Palo Alto Development Impact Fee Program Nexus Study," November 27, 2013;

63 Table 10 RBD Storm Drain Fee City of East Palo Alto Residential Nexus Fee Analysis 2013 Impervious Acres per DU or Built SF/Imperv. Acre GPD per DU/SF Impervious Acres Storm Drain Infrastructure Cost $11,488,372 Storm Drain Cost w/ 4% Admin. Fee $11,947,907 Storm Drain Cost/Impervious Acre $119,623 Townhomes Multi-Family Housing Office 63, Industrial 26, R&D 26, Retail 19, Source: AECOM, "City of East Palo Alto Development Impact Fee Program Nexus Study," November 27, 2013;

64 Table 11 RBD Water Storage Fee City of East Palo Alto Residential Nexus Fee Analysis 2013 Acreage of New Development (50-80 Yr.) Water Storage Tank Cost $5,000,000 Storm Drain Cost w/ 4% Admin. Fee $5,200,000 Storm Drain Cost/Impervious Acre $37,485 Total Land Area Buildings (Acreage or SF) (DUs or SF) Fee Per Unit or SF Townhomes $1,838 Multi-Family Housing $796 Office 953,600 1,255,138 $0.65 Industrial 1,443, ,000 $1.59 R&D 1,024, ,200 $1.54 Retail 262, ,800 $2.15 Source: AECOM, "City of East Palo Alto Development Impact Fee Program Nexus Study," November 27, 2013;

65 Table 12 RBD Roadway Fee City of East Palo Alto Residential Nexus Fee Analysis 2013 Trips per Unit or Fee Per DU ITE Code DU Trips Per 1,000 SF Total Trips or Per SF Total Number of Trips on RBD Townhomes $12,383 Multi-Family Housing ,341 $14,173 Office 710 1,000, ,000 $23.44 Industrial , ,221 $14.92 R&D , $17.05 Total 17,508 Total Cost for Roadway Improvements $35,878,900 Roadway Cost w/ 4% Admin. Fee $37,314,056 Roadway Cost/Trip $2,131 Source: AECOM, "City of East Palo Alto Development Impact Fee Program Nexus Study," November 27, 2013; City of East Palo Alto; David Paul Rosen & Associates.

66 Table 13 RBD Streetscape Improvement Fee City of East Palo Alto Residential Nexus Fee Analysis 2013 Service Population per DU or SF per Service Pop. Fee Per Unit/SF Total RBD New Service Population (2010 to 2035) 5,192 Streetscape Infrastructure Cost $1,927,100 Streetscape Cost w/ 4% Admin. Fee $2,004,184 Streetscape Cost/Impervious Acre $ Townhomes 3.9 $1,506 Multi-Family Housing 3.2 $1,235 Office 520 $0.74 Industrial 1,820 $0.21 R&D 1,220 $0.32 Source: AECOM, "City of East Palo Alto Development Impact Fee Program Nexus Study," November 27, 2013; City of East Palo Alto; David Paul Rosen & Associates.

67 Table 14 Summary of Development Impact Fees in the RBD Based on AECOM Study 2013 Townhome (per DU) MultiFamily (per DU) Office (psf) R&D (psf) Industrial (psf) Retail (psf) Parks and Trails Citywide Fee N/A N/A $2.35 $1.00 $0.67 $1.39 RBD-Specific Fee N/A N/A N/A N/A N/A N/A Total Fee Inside RBD $0 $0 $2.35 $1.00 $0.67 $1.39 Community Facilities Citywide Fee $4,386 $3,628 $2.16 $0.92 $0.62 $1.28 RBD-Specific Fee N/A N/A N/A N/A N/A N/A Total Fee Inside RBD $4,386 $3,628 $2.16 $0.92 $0.62 $1.28 Water Infrastructure Citywide Fee $1,003 $784 $0.44 $1.49 $1.45 $0.62 RBD-Specific Fee $8,389 $4,077 $3.07 $7.84 $8.08 $9.13 Total Fee Inside RBD $9,392 $4,861 $3.51 $9.33 $9.53 $9.75 Roadway Infrastructure Citywide Fee N/A N/A N/A N/A N/A N/A RBD-Specific Fee $12,383 $14,173 $23.44 $14.92 $17.05 N/A Total Fee Inside RBD $12,383 $14,173 $23.44 $14.92 $17.05 N/A Streetscape Citywide Fee N/A N/A N/A N/A N/A N/A RBD-Specific Fee $1,506 $1,235 $0.74 $0.32 $0.49 N/A Total Fee Inside RBD N/A Total Citywide Fee $5,389 $4,412 $4.95 $3.41 $2.74 $3.29 RBD-Specific Fee $22,277 $19,485 $27.26 $23.08 $25.62 $9.13 Total Fee Inside RBD $27,666 $23,897 $32.21 $26.49 $28.36 $12.42 Source: AECOM, "City of East Palo Alto Development Impact Fee Program Nexus Study," November 27, 2013; City of East Palo Alto; David Paul Rosen & Associates.

68 ATTACHMENT 2 [This page is intentionally left blank.]

69 City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014

70 P R E P A R E D F O R : City of East Palo Alto 2415 University Avenue East Palo Alto, CA P R E P A R E D B Y : David Paul Rosen & Associates 1330 Broadway, Suite 937 Oakland, CA Fax david@draconsultants.com Hendrix Street Irvine, CA Fax nora@draconsultants.com City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 i

71 Table of Contents Executive Summary...1 Background...1 Target Income Levels...3 Affordability Gap Analysis...4 Residential Nexus Analysis...7 Economic Impact Analysis...10 Land Residual Analysis...10 Rent and Return Analysis...11 Nexus Fees in Other Cities...12 Recommendations...14 Introduction...17 The Nexus Relationship...17 Nexus Legal Requirements in California...18 The Nexus Rationale...21 Affordable Housing Income Levels, Rents and Home Prices...22 Target Income Levels...22 Affordable Rents and Home Prices...23 Affordable Housing Cost Definitions...23 Occupancy Standards...24 Utility Allowances...24 Affordable Net Rents and Owner Monthly Housing Expense...25 Affordable Home Prices...26 Market Rents and Home Prices...27 Apartment Rents and Vacancy Rates...27 Condominium and Single-Family Home Sales Prices...29 Affordability Gap Analysis...30 Methodology...30 City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 ii

72 Housing Development Costs...32 Calculation of Per Unit Subsidy Amounts...33 Residential Nexus Analysis...36 Impact Methodology and Use of the IMPLAN Model...36 The IMPLAN Model...37 Disposable Income of New Households...39 Projected Employment Generation...42 Adjustment for Full-Time Employment...43 Adjustment for Potential Increase in Labor Force Participation...44 Projected Household Growth...44 Projected Very Low and Low Income Households...44 Total Affordability Gap for New Households...45 Economic Impact Analysis...46 Land Residual Analysis...47 Land Residual Analysis Methodology...47 Assumptions...48 Market Land Sales Prices...48 Findings and Conclusions...48 Rent and Return Analysis...49 Methodology and Assumptions...49 Findings and Conclusions...50 City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 iii

73 L I S T Table ES-1 ES-2 ES-3 ES-4 ES-5 ES-6 ES O F T A B L E S Title Affordable Housing Income Limits by Household Size, Per Unit Affordability Gaps, Very Low Income Households Per Unit Affordability Gaps, Low Income Households Per Unit Affordability Gaps, Moderate Income Households Page Estimated Maximum Residential Nexus Fee Per Housing Unit Estimated Maximum Residential Nexus Fee Per Net Square Foot Supported and Adopted Nexus Fees in Selected California Communities, July, 2013 Affordable Housing Income Limits by Household Size Current Monthly Utility Allowances for Rental Housing Affordable Monthly Net Rents Affordable Monthly Owner Housing Cost Affordable Home Prices Apartment Inventory Characteristics, San Mateo County Average Apartment Rents and Vacancy Rates, San Mateo County Communities Estimated Per Unit Total Development Costs, New Construction Housing Prototypes Per Unit Affordability Gaps, Very Low Income Households, New Construction Housing Prototypes City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 iv

74 Table Title Per Unit Affordability Gaps, Low Income Households, New Construction Housing Prototypes Per Unit Affordability Gaps, Moderate Income Households, New Construction Housing Prototypes Estimated Income Distribution and Total Household Income of Homebuyers; Prototype #1: Single-Family Infill Estimated Income Distribution and Total Household Income of Homebuyers; Prototype #2: Owner Townhomes Page Estimated Income Distribution and Total Household Income of Homebuyers; Prototype #3: Stacked Flat Apartments; Podium Parking Estimated Income Distribution and Total Household Income of Homebuyers; Prototype #4: Stacked Flat Condos; Underground Parking Summary of Projected Economic Impacts, Prototypical Housing Developments Estimated New Low and Moderate Income Employee Households Generated by New Construction Housing Prototypes Estimated Maximum Residential Nexus Fee Per Housing Unit, New Construction Housing Prototypes City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 v

75 A P P E N D I X A : L I S T O F T A B L E S Table Title A-1 Housing Prototype Projects A-2 Affordable Rents and Prototype Supportable Mortgage, Renter Prototype A-3 Affordable Mortgage by Income Level, Owner Housing Prototypes A-4 Condominium Sales, City of East Palo Alto, January 1, 2012 through May 1, 2013 A-5 Single-Family Home Sales, City of East Palo Alto, January 1, 2012 through May 1, 2013 A-6 Estimated Development Costs, Owner Prototype #1 A-7 Estimated Development Costs, Owner Prototype #2 A-8 Estimated Development Costs, Renter Prototype #3 A-9 Estimated Development Costs, Owner Prototype #4 A-10 Per Unit Total Development Costs, New Owner and Renter Housing Prototype Units A-11 Owner Housing Affordability Gap Calculations, Prototype #1, Single-Family Infill A-12 Owner Housing Affordability Gap Calculations, Prototype #2, Owner Townhomes A-13 Rental Housing Affordability Gap Calculations, Prototype #3, Stacked Flat Apartments, Podium Parking A-14 Owner Housing Affordability Gap Calculations, Prototype #4, Stacked Flat Condos, Underground Parking A-15 Projected Household Income Distribution of New Homebuyers, Prototype #1, Single-Family Infill A-16 Projected Household Income Distribution of New Homebuyers, Prototype #2, Owner Townhomes A-17 Projected Household Income Distribution of New Rental Housing Tenants, Prototype #3, Stacked Flat Apartments, Podium Parking City of East Palo Alto Affordable Housing Nexus Study Final Report Page July 10, 2014 vi

76 Table Title A-18 Projected Household Income Distribution of New Homebuyers, Prototype #4, Stacked Flat Condos, Underground Parking A-19 Estimated Total Household Income of New Homebuyers, Prototype #1, Single-Family Infill A-20 Estimated Total Household Income of New Homebuyers, Prototype #2, Townhomes A-21 Estimated Total Household Income of New Homebuyers, Prototype #3, Stacked Flat Apartments, Podium Parking A-22 Estimated Total Household Income of New Homebuyers, Prototype #4, Stacked Flat Condos, Underground Parking A-23 Summary of Projected Economic Impacts by Prototype A-24 Projected Employment Impacts by Industry Sector, Prototype #1, Single-Family Infill A-25 Projected Employment Impacts by Industry Sector, Prototype #2, Owner Townhomes A-26 Projected Employment Impacts by Industry Sector, Prototype #3, Stacked Flat Apartments, Podium Parking A-27 Projected Employment Impacts by Industry Sector, Prototype #4, Stacked Flat Condos, Underground Parking A-28 Projected Labor Income by Industry Sector, Prototype #1, Single-Family Infill A-29 Projected Labor Income by Industry Sector, Prototype #2, Owner Townhomes A-30 Projected Labor Income by Industry Sector, Prototype #3, Stacked Flat Apartments, Podium Parking A-31 Projected Labor Income by Industry Sector, Prototype #4, Stacked Flat Condos, Underground Parking A-32 Wages by Occupational Grouping, San Francisco-San Mateo-Redwood City MSA, 1st Quarter 2012 City of East Palo Alto Affordable Housing Nexus Study Final Report Page July 10, 2014 vii

77 Table Title Page A-33 Estimated Qualifying Very Low, Low and Moderate Income Households, Prototype #1, Single-Family Infill 85 A-34 Estimated Qualifying Very Low, Low and Moderate Income Households, Prototype #2, Owner 86 Townhomes A-35 Estimated Qualifying Very Low, Low and Moderate Income Households, Prototype #3, Stacked Flat 87 Apartments, Podium Parking A-36 Estimated Qualifying Very Low, Low and Moderate Income Households, Prototype #4, Stacked Flat 88 Condos, Underground Parking A-37 Estimated Maximum Residential Nexus Fee Per Unit and Per Net Square Foot, New Owner and Renter 89 Housing Prototype Units A-38 Land Residual Analysis Assumptions 90 A-39 Land Residual Analysis Construction Cost and Net 91 Operating Income Calculations A-40 Land Residual Analysis 92 A-41 Vacant Residential Land Sales, January 1, 2008 through May 1, A-42 Development Cost and Rent Analysis 94 A-43 Rate of Return Analysis 95 A P P E N D I X B Utility Allowance Schedule, Housing Authority of the County of San Mateo, November 1, 2012 City of East Palo Alto Affordable Housing Nexus Study Final Report 97 July 10, 2014 viii

78 Executive Summary Background The City of East Palo Alto first adopted its inclusionary housing ordinance in 1994, which is codified in Zoning Ordinance Chapter 8.5 as the Below Market Rate (BMR) Housing Program (the Ordinance). An amendment to the Ordinance was adopted in April The Ordinance requires new for-sale developments of two or more units to set aside 20 percent of total units for purchase by households with incomes between 60 percent and 90 percent of area median income (AMI). In December 2011, the City Council approved Ordinance No. 354 amending the BMR Housing Program. Amendments to the Ordinance allow the payment of in lieu fees for all rental projects and optional payment of in lieu fees for ownership projects. The City intended this Ordinance to serve as an interim measure while the City obtained a nexus study to establish a fee to be applied to future residential development projects. The City of East Palo Alto (City) retained David Paul Rosen & Associates (DRA) to prepare a nexus study examining the legality and basis for establishing a rational nexus between market-rate residential development and the need for affordable housing in the City. To the extent that new market-rate residential development in the City increases demand for housing and exacerbates the City s shortage of affordable housing, the City has a strong public interest in, and a legal basis for, causing new affordable housing to be developed to meet this additional demand. In designing a fee on new residential development to assist the provision of affordable housing, the basis for the fee is that such development has a deleterious impact by increasing employment, which also increases the demand for housing for the added employees, because market-rate housing development, with no public assistance, will not provide housing affordable for the additional lower-earning employees. The legal requirement is that a local government charging a fee make some affirmative showing that: (1) those who must pay the fee are contributing to the problem that the fee will address; and (2) the amount of the fee is reasonably justified by the magnitude of the fee-payer's contribution to the problem. This City of East Palo Alto Affordable Housing Nexus Study Final Report July 10,

79 relationship has been well documented and nexus fees have been successfully upheld against legal challenge where the fees met standards set by case law. Unlike development impact (or nexus ) fees, inclusionary housing ordinances, which require a share of newly constructed housing to be affordable to people with low and moderate incomes, rely on the police power of local government to take actions and adopt laws and policies that protect the public s health, safety and welfare. In 2009, in Palmer/Sixth Street Properties, L.P. v City of Los Angeles (2009) 175 Cal. App. 4 th 1396, the California Court of Appeal prohibited the City of Los Angeles from enforcing its inclusionary housing ordinance on the developer s rental housing development. The California Supreme Court has let stand that decision, denying review of the appellate court s ruling. In its ruling, the court held that forcing Palmer to provide affordable housing units at regulated rents conflicts with the right afforded residential landlords under Costa-Hawkins Act to establish the initial rental rate for a dwelling unit. However, the court acknowledged that the Costa-Hawkins Act does not apply where the owner has agreed to build affordable housing in consideration for a direct financial contribution or other form of assistance specified in state density bonus law. In California Building Industry Association v. City of San Jose (2012) No CV , the Santa Clara County Superior Court invalidated the City of San Jose s inclusionary housing ordinance, concluding that the City had failed to provide a legally sufficient evidentiary showing to demonstrate justification for the ordinance s exactions of affordable units or in lieu fees. The judgment also enjoined the City from enforcing or implementing the ordinance. While the City of San Jose did acknowledge the Palmer decision and suspended its requirements with regards to new rental housing, it had continued to enforce the ordinance for new owner housing. The City of San Jose appealed the decision in the CBIA case and on June 6, 2013, the Court of Appeal held that inclusionary housing ordinances are valid if they are reasonably related to a legitimate public purpose. The Court found that San Jose s ordinance had been adopted to alleviate the demand for affordable housing by requiring affordable housing in new developments. Therefore, it should be viewed as an exercise of the City s police power, as long as it bears a reasonable relationship to the public welfare. It would be invalid only if arbitrary, discriminatory or without a reasonable relationship to a legitimate public interest. The Court also held that it was CBIA s burden to establish that the City s ordinance did not bear a reasonable relationship to the public welfare, not the City s burden City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 2

80 to prove the ordinance s validity. The case has been remanded to the Superior Court to evaluate the ordinance under the correct standard. The Court of Appeal s decision in the San Jose case allows cities and communities to adopt inclusionary housing ordinances applicable to for-sale housing without completing a nexus study. Communities should include evidence in the record showing that inclusionary requirements will help produce affordable housing. Target Income Levels The nexus analysis uses income limits commonly defined by the U.S. Department of Housing and Urban Development (HUD) and most affordable housing assistance programs. Very low income households are defined as households with incomes up to 50 percent of area median income (AMI), or approximately $52,750 for a four-person household in San Mateo County in Low income households are defined as households with incomes between 51 percent and 80 percent of AMI, or approximately $84,400 or less for a four-person household in Moderate income households are defined as those households earning between 81 and 120 percent of AMI, or approximately $126,600 or less for a fourperson household. All of these income limits are based on the 2013 median family income (MFI) of $105,500 for the San Francisco Metro FMR 1 Area (HMFA). HUD calculates a single median household income figure for the entire San Francisco HMFA, which then applies to each County within the HMFA, including San Mateo County. Table ES-1 shows 2013 very low, low and moderate income limits for the City of East Palo Alto for household sizes of one to six persons using HUD household size adjustment factors. 1 FMR stands for Fair Market Rent. The San Francisco HMFA is a HUD-defined metropolitan area (a subset of the San Francisco-Oakland-Fremont Metropolitan Statistical Area or MSA) comprised of San Francisco, San Mateo and Marin Counties. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 3

81 Table ES-1 Affordable Housing Income Limits by Household Size City of East Palo Alto Affordable Housing Nexus Study 2013 Household Size Very Low 50% AMI Low Income 80% AMI Moderate Income 120% AMI One Person $36,950 $59,100 $88,620 Two Persons $42,200 $67,550 $101,280 Three Persons $47,500 $76,000 $113,940 Four Persons $52,750 $84,400 $126,600 Five Persons $57,000 $91,200 $136,720 Six Persons $61,200 $97,950 $146,850 Source: 2013 median household income for the San Francisco HMFA of $105,500, adjusted by household size and income level; DRA. Affordability Gap Analysis The affordability gap analysis compares the cost of housing development in the City to the amount very low, low, and moderate income households can afford to pay for housing. The affordability gap represents the capital subsidy required to develop housing affordable to families at these target income levels. The per unit subsidy required to make new housing affordable to very low, low, and moderate income residents was calculated by subtracting per unit development costs from the per unit mortgage or home price supportable from affordable rents and owner housing cost. For the rental housing prototype, we have also subtracted the estimated portion of the gap that would be covered by tax credit equity in a typical 4 percent rental tax credit project, which DRA estimates at 25 percent of total development costs. The resulting per unit subsidies required by unit bedroom count are shown for new housing development in Table ES-2 for very low income households, Table ES-3 for low income households, and Table ES-4 for moderate income households. The results of the gap analysis show significant affordability gaps for all prototypes for very low and low income households. Given the relatively high median income for San Mateo County, there are no gaps for some unit sizes and prototypes at the moderate income level. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 4

82 Unit Bedroom Count Table ES-2 Per Unit Affordability Gaps Very Low Income Households New Construction Housing Prototypes City of East Palo Alto Affordable Housing Nexus Study 2013 Prototype #1 Prototype #2 Prototype #3 Prototype #4 Single-Family Infill Owner Townhomes Stacked Flat Apartments Podium Parking Stacked Flat Condos Underground Parking One Bedroom N/A N/A $127,600 $196,000 Two Bedrooms N/A $143,000 $214,500 $256,000 Three Bedrooms N/A $182,400 N/A $428,000 Four Bedrooms $244,400 N/A N/A N/A Average 1 $244,400 $174,500 $157,100 $277,000 1 Weighted average based on the unit distribution by bedroom count for the housing prototypes in Appendix Table A-1. Source: Appendix Tables A-7 through A-10; DRA. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 5

83 Unit Bedroom Count Table ES-3 Per Unit Affordability Gaps Low Income Households New Construction Housing Prototypes City of East Palo Alto Affordable Housing Nexus Study 2013 Prototype Prototype #1 #2 Prototype #3 Prototype #4 Single-Family Infill Owner Townhomes Stacked Flat Apartments Podium Parking Stacked Flat Condos Underground Parking One Bedroom N/A N/A $62,700 $123,000 Two Bedrooms N/A $61,600 $141,400 $174,600 Three Bedrooms N/A $92,000 N/A $338,000 Four Bedrooms $146,700 N/A N/A N/A Average 1 $146,700 $85,900 $89,400 $205,400 1 Weighted average based on the unit distribution by bedroom count for the housing prototypes in Appendix Table A-1. Source: Appendix Tables A-7 through A-10; DRA. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 6

84 Unit Bedroom Count Table ES-4 Per Unit Affordability Gaps Moderate Income Households New Construction Housing Prototypes City of East Palo Alto Affordable Housing Nexus Study 2013 Prototype #1 Prototype #2 Prototype #3 Prototype #4 Single-Family Infill Owner Townhomes Stacked Flat Apartments Podium Parking Stacked Flat Condos Underground Parking One Bedroom N/A N/A $0 $0 Two Bedrooms N/A $0 $68,400 $11,800 Three Bedrooms N/A $0 N/A $157,000 Four Bedrooms $0 N/A N/A N/A Average 1 $0 $0 $21,700 $62,700 1 Weighted average based on the unit distribution by bedroom count for the housing prototypes in Appendix Table A-1. Source: Appendix Tables A-7 through A-10; DRA. Residential Nexus Analysis The methodology used for the residential nexus analysis begins with the estimated sales prices of a prototypical residential subdivision, or rents at an apartment complex, and moves through a series of linkages to the incomes of the households that purchase or rent the units, the annual expenditures of those households on goods and services, the jobs associated with the delivery of these goods and services, the income of the workers performing those jobs, the household income of those worker households, and finally to the affordability level of the housing needed by those worker households. The steps of the analysis are as follows: 1. Define a prototypical residential development or subdivision. 2. Estimate the household income distribution of the households purchasing or renting these homes. 3. Estimate the consumer expenditures of those households. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 7

85 4. Estimate the number of new full-time employees required to provide the goods and services purchased by these households. 5. Estimate the number of new households associated with this employment growth. 6. Estimate the income distribution of these new employee households. 7. Estimate the number of new households requiring affordable housing. 8. Estimate the housing affordability gap for these affordable housing units. 9. Calculate the maximum supportable residential nexus fee. For owner housing, DRA estimated the household income distribution of households purchasing the new homes based on minimum qualifying income criteria for new loans on these units. For renters, tenant household income is calculated from typical income to rent standards used by apartment owners. The consumer expenditures of these households and the jobs generated by these expenditures are estimated using the IMPLAN model, a model widely used for the past 25 years to quantify employment impacts from personal income. Based on the employment generation by industry from the IMPLAN model, DRA used its nexus model to quantify the income of worker households by affordability level. Table ES-5 shows the estimated maximum supportable residential nexus fee per housing unit based on the costs to build new renter and owner housing in East Palo Alto. Table ES-6 shows the supported nexus fees on a per net square foot basis. The results of the nexus analysis show significant supportable nexus fees for all prototypes for very low and low income households. Given the high median income for San Mateo County, there are no affordability gaps for some unit sizes and prototypes at the moderate income level, resulting in no to low supportable nexus fees for this income level. Development impact fee programs may include the cost of administering the program that funds affordable housing, including: The administrative costs of assessing, collecting, cost accounting, and public reporting of the fee; The cost of justification analyses, legal support, and other costs of annual and/or periodic updates to the fee; and City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 8

86 Costs of capital planning and programming, including project management costs associated with the share of projects funded by the fee. Administration charges typically range from 1.0 percent up to 5.0 percent and may be added to the maximum fee level. Table ES-5 Estimated Maximum Residential Nexus Fee Per Housing Unit City of East Palo Alto Affordable Housing Nexus Study 2013 Household Income Level Prototype #1 Single- Family Infill Prototype #2 Owner Townhomes Prototype #3 Stacked Flat Apartments Podium Parking Prototype #4 Stacked Flat Condos Underground Parking Very Low Income $39,100 $20,900 $15,700 $30,500 Low Income $8,800 $3,400 $3,600 $8,200 Moderate Income $0 $0 $400 $1,900 Total $47,900 $24,300 $19,700 $40,600 Source: Appendix Table A-37; DRA. Table ES-6 Estimated Maximum Residential Nexus Fee Per Net Square Foot City of East Palo Alto Affordable Housing Nexus Study 2013 Household Income Level Prototype #1 Single- Family Infill Prototype #2 Owner Townhomes Prototype #3 Stacked Flat Apartments Podium Parking Prototype #4 Stacked Flat Condos Underground Parking Very Low Income $19.55 $19.76 $18.08 $33.59 Low Income $4.40 $3.24 $4.12 $9.06 Moderate Income $0.00 $0.00 $0.50 $2.07 Total $23.95 $23.00 $22.70 $44.72 Source: Appendix Table A-37; DRA. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 9

87 Economic Impact Analysis DRA analyzed the potential economic impact of an affordable housing nexus fee on market-rate residential development. The increase in cost associated with the nexus fee, however large or small, must be absorbed in one of the following three ways, or some combination of the three: 1. Through an increase in cost to the end user of the building in the form of a price or rent increase; 2. Through a decrease in profits to the developer who develops the site; and/or 3. Through a decrease in the price for the land paid to the landowner. In a competitive market, owners of residential developments are already commanding the maximum sales prices or rents that the market will bear. Therefore, it is least likely that sales prices or rents will increase. When an additional cost is imposed on a project after the land is purchased, the developer will most likely bear the cost in terms of reduced profit on projects in the pipeline. Over time, developers will shop for the highest return on their investment within the regional market area. The total amount of development impact fees is but one of many cost and income factors that determine the rate of return for one project compared to another. Ultimately, the fee is most likely to be absorbed through a decrease in land price after the market adjusts. This may take several years as the projects already in the pipeline are completed. Given these potential alternative impacts, DRA uses several different approaches in assessing the economic effect of a proposed nexus fee. We conduct a land residual analysis that calculates the value attributed to land from proposed development on a site, with and without a nexus fee. For the rental prototype, we also use a market and investment approach that calculates the increase in rents, or decrease in the rate of return on investor equity, required to accommodate the fee at current market terms for both debt and equity financing. LAND RESIDUAL ANALYSIS Land residual analysis methodology calculates the value attributed to land from proposed development on a site. It is commonly used by real estate developers and investors to evaluate development financial feasibility and determine the highest and best use among alternative permitted uses for a piece of property. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 10

88 Land residual methodology calculates the value of a development based on its income potential and subtracts the costs of development and developer profit to yield the underlying value of the land. When evaluating alternative land uses, the alternative that generates the highest value to a site is considered its highest and best use. An alternative that generates a value to the land that is negative, or well below market land sales prices, is not financially feasible. DRA calculated net operating income from each housing prototype, based on estimated market sales prices for owner housing, or rents, vacancy rates and operating costs for rental housing. For the rental housing prototype, net operating income is capitalized at an assumed capitalization rate to determine the value of the developed property. The capitalization, or cap, rate is the ratio of net operating income to project fair market value, or sales price, exhibited in the market and reflects the rate of return required by investors in rental property. Total development costs are subtracted from estimated net sales proceeds for owner housing or the capitalized value of rental housing to yield the estimated residual land value. The findings of the land residual analysis indicate that with no affordable housing fee, residual land values are below recent land sales prices in the City of East Palo Alto for Prototype #3, Stacked Flat Rental Apartments, and are negative for Prototype #4, Stacked Flat Owner Condos. These results suggest that these prototypes are not currently feasible based on the sales price, rent and development cost assumptions used in this analysis. For Prototype #1, Single- Family Infill a nexus fee of $40,000 per unit, or $20 per net square foot of living area, an amount supported by nexus analysis, reduces residual land value by $10.00 per square foot of site area, providing residual land values within the range of recent land sales prices. For Prototype #2, Owner Townhomes, a nexus fee of $20,000 per unit, or $19 per net square foot of living area, also supported by the nexus study reduces residual land value by $9.43 per square foot of site area, providing residual land values also within the range of recent land sales prices. RENT AND RETURN ANALYSIS For the renter prototype, DRA calculated the percentage increase in rents, and the decrease in the rate of return on investor equity, required to finance the fee at current market terms for both debt and equity financing. By applying the average financing cost to the fee at illustrative fee levels, we determine the rent increase necessary to keep returns to developers and investors constant. Alternatively, we calculate the decrease in the rate of return on equity to investors assuming rents remain constant. As noted above, DRA believes that a change in rents due to the imposition of a nexus fee is the least likely market outcome. For project sites already owned by City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 11

89 their developers (as opposed to those yet to be purchased by a developer), a reduction in the rate of return on their investment may occur. An impact fee of $20,000 on rental Prototype #3 reduces the rate of return on equity from percent to percent, a reduction that DRA does not consider significant. Nexus Fees in Other Cities DRA surveyed supported and adopted affordable housing nexus fees on market-rate rental residential development in other cities that have prepared, or are preparing, nexus studies and/or have adopted such fees since the Palmer and Patterson legal decisions. Our findings are summarized in Table ES-7. Of the eight cities surveyed, five have adopted rental housing nexus fees ranging from a low of $10 per square foot (Mountain View) to a high of $28,000 per unit (or $31.11 per square foot based on a 900 square foot unit) in Berkeley. For the three other cities with adopted fees, the fees range from $23 to $28 per square foot. In the remaining three communities surveyed, nexus studies are still in progress or in draft form and no fees have been adopted. In addition to fees on rental apartments, the City of Santa Monica has adopted a fee of $32.30 per square foot on condominiums, and San Carlos has adopted an in-lieu fee on owner housing that varies based on the number of units, but generally ranges from $20.59 to $42.20 per square foot. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 12

90 Table ES-7 Supported and Adopted Nexus Fees in Selected California Communities City of East Palo Alto Affordable Housing Nexus Study July, 2013 City Supported Fee Per Unit 1 Supported Fee Per SF 1 Berkeley $34,000 per unit $37.78 based on 900 SF unit Adopted Fee $28,000 per unit (equals $31.11 based on 900 SF unit) Carlsbad 2 N/A $22 to $32 $20 per SF (recommended) Mountain View $35,000 to $64,000 per unit N/A $10 per SF Pleasanton 3 N/A N/A N/A Sacramento 4 $24,200 to $30,000 per unit $25.47 to $35.41 per SF San Carlos $43,101 per unit $42.04 to $45.28 per SF N/A Varies by number of units but generally $23.54 to $28.27 per SF Santa Monica N/A N/A $27.57 per SF Solana Beach $34,000 to $39,800 $48 to $57 per SF $25.28 per SF based on 695 SF unit N/A = Not Available Based on a nexus study. 2 No fee has been adopted yet. The Housing Commission recommended to City Council the adoption of a fee of $20 per SF. 3 Study is currently being completed. Staff expects the item to go to City Council in August or September Draft of study completed in July No fee adopted yet. Source: DRA. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 13

91 Recommendations The City of East Palo Alto has historically exhibited rents and home sales prices substantially below those in the more affluent communities surrounding it. However, with the ever-diminishing supply of developable land in the Bay Area, and increasing population pressures, DRA expects the City of East Palo Alto to experience significant speculative pressure on home prices and rents in the years to come. Therefore, we recommend that the City take action to preserve existing affordable units in the City, to encourage private development of new affordable housing, and to generate revenue to subsidize the development of publicly-assisted affordable housing for the benefit of the community. DRA proposes the following major revisions to the City s Below Market Rate (BMR) Housing Ordinance: 1. Remove inclusionary housing requirements for rental housing, and in its place adopt an affordable housing impact fee for new construction of rental housing units, to comply with the Palmer decision. 2. Substitute a nexus fee requirement for inclusionary housing requirements for new construction of owner housing units, with the fee collected at the time of building permit. 3. Define new construction housing subject to the ordinance to include the voluntary removal and replacement of existing units, but not to include the enlargement of existing units. 4. Provide developers alternatives to paying the nexus fee, including but not limited to the provision of affordable housing units, subject to negotiation and Council approval of a development agreement. 5. Set the initial citywide affordable housing impact fees for owner and rental housing at approximately 95% of the maximum supportable nexus fees as follows: Rental housing: Owner housing without structured parking: Owner housing with structured parking: $22.00 per net square foot $22.00 per net square foot $44.00 per net square foot City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 14

92 Levying the fee on a per net square foot basis, rather than a per housing unit basis, results in higher fees for larger units. For developments with comparable locational advantages, larger units are generally associated with higher rents/sales prices and higher tenant/buyer incomes, hence, this is consistent with the typically greater impact created by larger units. The maximum supportable nexus fees for three of the owner housing prototypes examined (Prototypes 1 through 3: single-family infill, owner townhomes and rental apartments) are very close, at $22 to $23 per net square foot. Only Prototype 4 (stacked flat condos with subterranean parking) generates a materially higher nexus fee of $42 per net square foot, due to the higher cost of subterranean and structured parking. Therefore, a higher fee is proposed for owner housing with structured parking. 6. For the RBD/4 Corners Specific Plan Area, set the affordable housing impact fee at $22 per net square foot for all residential development. The City would like to incentivize the creation of a mixed-use, higher density, pedestrian friendly downtown on Bay Rd as envisioned in the Specific Plan. In addition, a number of other impact fees will be required to provide necessary infrastructure to the Specific Plan area, increasing the total fee load on development in this area 7. Review and adjust fee levels annually to reflect the actual costs for the City to produce BMR units. a. Adjust owner nexus fees annually based on the percentage change (increase or decrease) in the three-year trailing Freddie Mac San Francisco-Oakland-Fremont MSA House Price Index. Using this index will adjust for changes in the local economy, up or down. Using a three-year average will smooth out fluctuations in the market to avoid more drastic changes in the fee from year to year. b. Adjust renter nexus fees annually based on the annual percentage increase in median rents by bedroom count in the City, averaged across unit sizes, as documented by the City s Rent Stabilization program. c. Fee adjustments should be calculated annually by City staff, recommended by the Finance Director and implemented by resolution of the City Council. d. Update the nexus analysis every five to ten years to ensure the necessary relationship between the fee and the projected deleterious City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 15

93 impact of residential development on affordable housing is maintained. 8. Use nexus fees for the creation of rental and/or owner housing, with rent or resale restrictions in place, affordable to households at the following income levels: a. Rental housing: up to 75 percent of AMI b. Owner housing: 75 percent to 110 percent of AMI In addition to the proposed changes to the ordinance listed above, we make the following additional recommendations regarding the City s BMR Housing Program: 1. Review the compliance and administration of resale restrictions on existing BMR units in the City, to ensure that adequate provisions are made to minimize the loss of affordability of these units. 2. Consider the establishment and funding of a revolving reserve fund to be used to purchase resale-restricted BMR units for resale to another qualified buyer, to prevent potential loss of such units. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 16

94 Introduction The City of East Palo Alto (City) retained David Paul Rosen & Associates (DRA) to prepare a nexus study examining the legality and basis for establishing a rational nexus between residential development and the need for affordable housing in the City. This report describes the methodology, assumptions and findings of the nexus analysis. The nexus analysis estimates the number of very low, low, and moderate income households associated with development of new residential development in the City, and calculates the maximum nexus fee based on the cost to produce housing affordable to these households. The nexus analysis is based on the demographic and economic characteristics of employees expected to provide goods and services to new residential customers. This report is presented in the following major sections: n The Nexus Relationship n Affordable Housing Income Levels, Rents and Home Prices n Market Rents and Home Prices n Affordability Gap Analysis n Residential Nexus Analysis n Economic Impact Analysis The Nexus Relationship This section describes statutory and case law requirements to establish a nexus in the calculation of development impact fees for affordable housing, and describes the nexus relationship between market-rate residential development and the need for affordable housing. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10,

95 Nexus Legal Requirements in California Fees on development in California are subject to two overlapping sets of legal requirements: 1. The U.S. Constitutional requirement of essential nexus and rough proportionality under the U.S. Supreme Court cases of Nollan v. California Coastal Commission (1987) 483 U.S. 825 and Dolan v. City of Tigard (1994) 512 U.S. 374, respectively; and 2. The Statutory reasonable relationship requirements contained in the California Mitigation Fee Act, which includes a series of statutes enacted over a number of years, initiated by Assembly Bill 1600, contained in California Government Code sections , commonly referred to AB 1600 or the Mitigation Fee Act. The California Supreme Court in Ehrlich v. City of Culver City (1996) 12 Cal. 4th 854, 867 concluded that these two Constitutional and Statutory tests, although legally distinct, are substantively similar and for all practical purposes have merged. Therefore, a fee that meets the statutory requirements of the Mitigation Fee Act will also meet the Constitutional requirements. The legal requirement is that a local government charging a fee make some affirmative showing that: (1) those who must pay the fee are contributing to the problem that the fee will address; and (2) the amount of the fee is justified by the magnitude of the fee-payer's contribution to the problem. The basis for a fee on new market-rate residential development to assist the provision of affordable housing is the relationship between new market-rate residential development and the need for new affordable housing. New market-rate residential development increases employment and also the demand for housing for the added employees. Market-rate housing development, without public assistance, will not provide housing affordable for the additional lower-earning employees. Without public assistance for new affordable housing development, such as the funding provided by a development impact fee, this will result in deleterious impacts upon the community. For example, without adequate affordable housing, workers will have to commute greater distances, thus increasing pollution and traffic impacts. As another example, if local workers cannot find affordable housing, they are forced to seek less than adequate shelter, overpay for shelter, and double up with other households, all of which carry a deleterious public impact. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 18

96 Unlike development impact fees, inclusionary housing ordinances, which require a share of newly constructed housing to be affordable to people with low and moderate incomes, rely on the police power of local government to take actions and adopt laws and policies that protect the public s health, safety and welfare. In Miller v. Board of Pubic Works (1925) 195 Cal. 477, the California Supreme Court found that local governments could legitimately employ their police powers to protect the general welfare through enactment of zoning ordinances creating residential zones reserved for single-family housing. Over the years, courts have held the police power to be quite broad, especially in the context of local land use law. Inclusionary zoning represents local government s use of the police power to correct past and continuing disparities to further the general welfare, such as those exacerbated by exclusionary zoning practices that excluded affordable housing and contributed to patterns of racial and economic segregation. Inclusionary ordinances have been challenged as a violation of the prohibition against taking without just compensation in the Fifth Amendment of the United States Constitution and Article I, section 19 of the California Constitution. In Homebuilders of Northern California v. City of Napa (2001) 90 Cal. App. 4 th 188, the California Court of Appeal found that, although the ordinance imposed a significant burden on developers in Napa, it provided significant benefits to the public by substantially advancing a well recognized, legitimate state interest. In addition, the ordinance permitted a developer to appeal for a reduction, adjustment, or complete waiver of the ordinance s requirements. Since the City had the ability to waive the requirements imposed by the ordinance, the ordinance did not, on its face, result in a taking. More recently, in Building Industry Association of Central California v. City of Patterson (2009) 171 Cal. App. 4 th 886, the California Court of Appeal concluded that the City of Patterson s failure to use appropriate methodology consistent with the legal standards generally applicable to development fees rendered its affordable housing in-lieu fees invalid. The court held that the fees were not reasonably related to and limited to the City s costs of addressing adverse public impacts on affordable housing attributable to new development, as required by the legal standards generally applicable to such fees. Later in 2009, in Palmer/Sixth Street Properties, L.P. v City of Los Angeles (2009) 175 Cal. App. 4 th 1396, the California Court of Appeal held in favor of the owner/developer, and prohibited the City of Los Angeles from enforcing its inclusionary housing ordinance on the developer s rental housing development. The California Supreme Court has let stand that decision, denying review of the City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 19

97 appellate court s ruling. In its ruling, the court held that forcing Palmer to provide affordable housing units at regulated rents conflicts with the right afforded residential landlords under Costa-Hawkins Act to establish the initial rental rate for a dwelling unit. The Court also held that the proposed in-lieu fee conflicts with the Costa-Hawkins Act because the fee is based solely on the number of affordable housing units that Palmer must provide under the Specific Plan. However, the court acknowledged that the Costa-Hawkins Act does not apply where the owner has agreed to build affordable housing in consideration for a direct financial contribution or other form of assistance specified in state density bonus law. In California Building Industry Association v. City of San Jose (2012) No CV , the Santa Clara County Superior Court invalidated the City of San Jose s inclusionary housing ordinance, concluding that the City had failed to provide a legally sufficient evidentiary showing to demonstrate justification for the ordinance s exactions of affordable units or in lieu fees. The judgment also enjoined the City from enforcing or implementing the ordinance. While the City of San Jose did acknowledge the Palmer decision and suspended its requirements with regards to new rental housing, it had continued to enforce the ordinance for new owner housing. The City of San Jose appealed the decision in the CBIA case and on June 6, 2013, the Court of Appeal held that inclusionary housing ordinances are valid if they are reasonably related to a legitimate public purpose. The Court found that San Jose s ordinance had been adopted to alleviate the demand for affordable housing by requiring affordable housing in new developments. Therefore, it should be viewed as an exercise of the City s police power, as long as it bears a reasonable relationship to the public welfare. It would be invalid only if arbitrary, discriminatory or without a reasonable relationship to a legitimate public interest. The Court also held that it was CBIA s burden to establish that the City s ordinance did not bear a reasonable relationship to the public welfare, not the City s burden to prove the ordinance s validity. The case has been remanded to the Superior Court to evaluate the ordinance under the correct standard. The Court of Appeal s decision in the San Jose case allows cities and communities to adopt inclusionary housing ordinances applicable to for-sale housing without completing a nexus study. Communities should include evidence in the record showing that inclusionary requirements will help produce affordable housing. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 20

98 Under Palmer, however, communities cannot impose inclusionary requirements on rental housing. These recent court cases do not invalidate development impact fees charged against new rental and ownership housing that have been developed using appropriate methodology demonstrating the fees were reasonably related to and limited to the City s costs of addressing deleterious public impacts on affordable housing attributable to new development. Many communities have completed or are undertaking nexus studies in order to impose development impact fees on new rental housing, in place of inclusionary requirements. This issue is not affected by the San Jose decision. The Nexus Rationale New market-rate housing development accommodates growth in population and households. The arrival of new population creates demand for additional jobs in retail outlets and services that serve that population. A portion of the income of the residents in new market-rate housing units will be spent to purchase a range of goods and services, such as purchases at local supermarkets and restaurants or services at local dry cleaners. These purchases in the local economy in turn generate employment in a range of different compensation levels. New residential construction makes room for new population and households moving to the City. Even if the household moving into a new unit is relocating from another house in the City, the household vacates an existing unit that, in turn, is filled with another household. Somewhere in the chain, new population and households are added to the City. New housing affordable to lower income households is not added to the supply in sufficient quantities to meet the needs of new lower income employee households. The cost to build new housing, or to acquire and rehabilitate existing housing, is more than the rents or home prices that lower income households can afford to pay. Lower income households often have jobs in the retail and service sectors, which have a high proportion of low-paying jobs, resulting in the inability of these households to afford rents or home prices. The methodology for quantifying the nexus relationship can be demonstrated in relation to a new family moving into the City. A new residential unit is developed within the City and sold or rented to a family at the going market rate. The family s income can be estimated based on the amount needed to purchase or rent the home, by using current mortgage rates, lending standards, and income/rent ratios used by rental property managers. A portion of a household s income will be used City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 21

99 to purchase goods and services, which will generate the need for additional employees at the businesses the household frequents. The additional employees will be paid at different salary levels, based on the industry and type of job. Some of the jobs that are produced will be low paying, especially service industry jobs, and will produce very low, low, and moderate income households, even when there are multiple earners in the households. These households are unable to purchase or rent housing units at market rates, and thus will seek out affordable units. The nexus methodology used by DRA quantifies the estimated increase in lower income households associated with new residential development, and estimates the costs of providing housing affordable to these new households. These costs are then translated into the maximum nexus fee that may be levied on residential development. This methodology is consistent with the standards of reasonable relationship established by Supreme Court case law and Government Code sections DRA s nexus analyses are designed to demonstrate the economic relationship between residential development and the need for affordable housing in the City. DRA employs consistently conservative assumptions, so that the resulting calculations of the maximum fees are likely to understate the maximum nexus calculation for each land use type. Affordable Housing Income Levels, Rents and Home Prices Target Income Levels The nexus analysis uses income limits commonly defined by the U.S. Department of Housing and Urban Development (HUD) and most affordable housing assistance programs. Very low income households are defined as households with incomes up to 50 percent of area median income (AMI). Low income households are defined as households with incomes between 51 percent and 80 percent of AMI. Moderate income households are defined as households with incomes between 81 percent and 120 percent of AMI. All of these income limits are adjusted by household size using HUD family size adjustment factors. Table 1 shows 2013 very low, low and moderate income limits for the City by household size based on these income category definitions and the HUD median City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 22

100 household income for the San Francisco HUD Metro FMR 1 Area (HMFA) of $105,500 for a four-person household. HUD calculates a single median household income figure for the entire San Francisco HMFA, which then applies to each County within the HMFA, including San Mateo County. Table 1 Affordable Housing Income Limits by Household Size City of East Palo Alto Affordable Housing Nexus Study 2013 Household Size Very Low 50% AMI Low Income 80% AMI Moderate Income 120% AMI One Person $36,950 $59,100 $88,620 Two Persons $42,200 $67,550 $101,280 Three Persons $47,500 $76,000 $113,940 Four Persons $52,750 $84,400 $126,600 Five Persons $57,000 $91,200 $136,720 Six Persons $61,200 $97,950 $146,850 Source: 2013 median household income for the San Francisco HMFA of $105,500, adjusted by household size and income level; DRA. Affordable Rents and Home Prices AFFORDABLE HOUSING COST DEFINITIONS Calculation of affordable rents and home prices requires defining affordable housing expense for renters and owners. Affordable housing expense for renters is defined to include rent plus utilities, which is standard for affordable housing programs and practice. For owners, affordable housing expense is defined to include mortgage principal and interest, property taxes (including special assessments), property insurance and homeowners association (HOA) dues. For both owners and renters, affordable housing expense is calculated at 30 percent of household income, per City policy. Defining affordable housing expense at the top of each income range for the purposes of calculating affordable rents and sales prices means that the resulting affordable rent or home price is not affordable to most households in the income category. Therefore, the City s internal policy is to define affordable housing expense for low and moderate income households at a mid-point of the income 1 FMR stands for Fair Market Rent. The San Francisco HMFA is a HUD-defined metropolitan area (a subset of the San Francisco-Oakland-Fremont Metropolitan Statistical Area or MSA) comprised of San Francisco, San Mateo and Marin Counties. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 23

101 range. For low income households, affordable housing expense is calculated at 70 percent of AMI. For moderate income households, affordable housing expense is calculated at 90 percent of AMI. OCCUPANCY STANDARDS Because income definitions for affordable housing assistance programs vary by household size, calculation of affordable rents and affordable owner housing costs requires the definition of occupancy standards (the number of persons per unit) for each unit size. For the purposes of this analysis, affordable housing cost is based on an occupancy standard of one person per bedroom plus one, consistent with California Health and Safety Code Section 50053(h). For example, the occupancy standard for purposes of calculating affordable rents and sales prices is 4 persons for a three-bedroom unit, and 3 persons for a two-bedroom unit. UTILITY ALLOWANCES Affordable net rents are calculated by subtracting allowances for the utilities paid directly by the tenants from the total affordable housing cost. For this calculation, DRA has incorporated utility allowances effective November 1, 2012 from the Housing Authority of the County of San Mateo, summarized in Table 2. These utility allowances assume residents pay for electric heating and lighting and natural gas cooking and water heating. It assumes the landlord pays for trash, water and sewer service. The complete utility allowance schedule is contained in Appendix B. These published utility allowances are higher than would be used in new Low Income Housing Tax Credit (LIHTC) projects, which are required to be highly energy efficient and are allowed to calculate lower allowances that vary from project to project using the California Utility Allowance Calculator (CUAC). Actual utility allowances for an individual unit would also depend upon a variety of factors, including the utilities that are in fact paid by the residents (e.g., water, gas, electricity, sewer, trash), the type of appliances and heating units contained in the units and whether appliances and heating units require electricity or gas. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 24

102 Table 2 Current Monthly Utility Allowances for Rental Housing East Palo Alto Affordable Housing Nexus Study November 1, 2012 Unit Bedroom Count Monthly Utility Allowance One Bedroom $44 Two Bedrooms $57 Three Bedrooms $74 Note: Assumes electric heating and lighting and gas cooking and water heating. Source: Housing Authority of the County of San Mateo; DRA. AFFORDABLE NET RENTS AND OWNER MONTHLY HOUSING EXPENSE Table 3 summarizes affordable monthly net rents by income level based on the assumptions described above. Table 4 summarizes monthly affordable housing costs for owners. Owner housing cost calculations assume monthly property insurance costs of $100, monthly HOA dues of $300, and annual property taxes, including assessments at 1.20 percent of the affordable home price. Detailed assumptions and calculations for affordable housing expense are shown in Appendix Tables A-2 and A-3. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 25

103 Table 3 Affordable Monthly Net Rents 1 East Palo Alto Affordable Housing Nexus Study 2013 Unit Bedroom Count Very Low Income (<=50% AMI) Low Income (51% - 80% AMI) Moderate Income (81% -120% AMI) One Bedroom $1,011 $1,433 $1,245 Two Bedrooms $1,130 $1,605 $1,772 Three Bedrooms $1,245 $1,772 $2,300 1 Gross rents are calculated assuming an occupancy standard of one person per bedroom plus one. Net rents are calculated assuming 30% of gross income spent on rent and then deducting the utility allowances from Table 2. Source: Appendix Table A-2; U.S. Department of Housing and Urban Development; DRA. Table 4 Affordable Monthly Owner Housing Cost 1 East Palo Alto Affordable Housing Nexus Study 2013 Unit Bedroom Count Very Low Income Low Income Moderate Income One Bedroom $537 $883 $1,576 Two Bedrooms $645 $1,035 $1,186 Three Bedrooms $754 $1,186 $2,051 Four Bedrooms $860 $1,307 $2,241 1 Owner affordable housing costs are calculated assuming an occupancy standard of one person per bedroom plus one and 30% of gross income spent on housing. Source: Appendix Table A-3; U.S. Department of Housing and Urban Development; DRA. AFFORDABLE HOME PRICES Table 5 shows affordable home prices by income level, based on the affordable monthly owner housing cost by income level and deductions for property taxes, property insurance and HOA dues. The maximum affordable home price is estimated assuming a 10 percent owner downpayment, a 4.5 percent mortgage interest rate and 30-year mortgage term. Detailed calculations of affordable home prices are shown in Appendix Table A-3. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 26

104 Table 5 Affordable Home Prices 1 East Palo Alto Affordable Housing Nexus Study 2012 Unit Bedroom Count Very Low Income Low Income Moderate Income One Bedroom $112,300 $185,000 $329,400 Two Bedrooms $135,000 $216,400 $379,200 Three Bedrooms $157,600 $248,000 $428,900 Four Bedrooms $175,600 $273,300 $468,700 1 Affordable mortgage principal and interest calculated by deducting the following from affordable owner monthly housing cost: annual property taxes and assessments at 1.2 percent of affordable home price; HOA dues of $300 per month; and property insurance of $100 per month. (Note: different HOA and insurance costs are used for individual housing prototypes in the nexus analysis.) Affordable mortgage calculated assuming 10% owner downpayment, 4.5% mortgage interest rate and 30-year mortgage term. Source: Appendix Table A-3; DRA. Market Rents and Home Prices Apartment Rents and Vacancy Rates Table 6 summarizes the characteristics of the current market-rate apartment inventory in San Mateo County in the first quarter 2013 based on data from REALFACTS. The data include a total of 114 apartment properties and 22,360 units in the County, with an average of 194 units per property. The overall rental vacancy rate for market-rate apartments in the County in the first quarter of 2013 was 6.4 percent, up from an average of 4.1 percent for the four quarters of Generally, a vacancy rate below 5 percent is considered to reflect a tight housing market. Growth in rents has been strong, with an 8.7 percent increase in the average rent over the prior year. The data show that approximately 9 percent of market-rate apartment units in the County are studios, 42 percent have one bedroom, 13 percent have two bedrooms and one bath, 25 percent have two bedrooms and two baths, and 2 percent have three bedrooms and two baths. Average monthly rents are $1,435 for a studio and $1,954 for a one-bedroom, one-bath unit. For two-bedroom units, average monthly rents are $2,234 for units with one bath and $2,668 two-bedroom units with two baths. The average monthly rent for a three-bedroom, two-bath unit is $3,310. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 27

105 The weighted average rent per net square foot for the County s rental inventory was $2.57 per square foot in the first quarter of The average rent per square foot for Class A properties, which account for 11 percent of the apartment units according to REALFACTS, was about 18 percent higher than the overall average at $3.02 per square foot. Table 6 also shows REALFACTS average rent data for the City of East Palo Alto. The REALFACTS data for the City include only three apartment properties: Royal Oaks (1920 Cooley Avenue, 65 units); Woodland Park (55 Newell Road, 108 units); Woodland Park Apartments (395 East Okeefe, 70 units). The Woodland Park properties are part of the larger Woodland Park housing portfolio of more than 1,800 units in East Palo Alto once owned by Page Mill Properties and since purchased by the firm Equity Residential upon Page Mill s foreclosure. Table 7 shows rents at Woodland Park Apartments based on data from Equity Residential s website. Table 6 Apartment Inventory Characteristics San Mateo County and City of East Palo Alto First Quarter, 2013 San Mateo County City of East Palo Alto Rents Woodland Park REALFACTS Apts. 1 Average 2 Unit Size Units Percent Average SF Average Rent Average Rent/SF Studio 1, % 476 $1,435 $3.01 $1,172-$1,382 $1,056 1 BR/1 BA 9, % 728 $1,954 $2.68 $1,295-$1,665 $1,175 2 BR/1 BA 2, % 913 $2,234 $2.45 $1,751-$1,981 $1,300 2 BR/2 BA 5, % 1,066 $2,668 $ BR/2 BA % 1,340 $3,310 $2.47 $2, Other 3 2, % TOTAL 22, % 846 $1,544 $ $1,125 Note: Averages for the total row are weighted averages. 1 From Equity Residential website ( June Averages for Royal Oaks (65 units); Woodland Park (108 units) and Woodland Park (70 units), from REALFACTS. 3 Includes junior one-bedroom units, townhomes, and units with other bathroom configurations than the ones listed above, which individually comprise less than 3% of the total apartment inventory. Source: Equity Residential; REALFACTS; DRA. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 28

106 Table 7 shows the average rent per unit for the eight cities within San Mateo County that have five or more properties in the REALFACTS database, along with East Palo Alto, which has three properties in the REALFACTS database. The City of East Palo Alto has the lowest average rent at $1,125, followed by Belmont at $1,813 and Pacifica at $1,923. The highest average rents of the cities shown are found in San Bruno at $2,417, followed by Foster City at $2,366 and South San Francisco with $2,302. Table 7 Average Apartment Rents and Vacancy Rates San Mateo County Cities 1 First Quarter, 2013 City # of Properties % of Total Average Occupancy Average Rent San Mateo % 3.8% $2,258 Foster City % 11.8% $2,366 Redwood City % 4.0% $2,135 Daly City % 7.5% $1,980 Belmont % 2.5% $1,813 Pacifica 9 8.7% 4.4% $1,923 South San Francisco 6 5.8% 3.7% $2,302 San Bruno 6 5.8% 9.6% $2,417 East Palo Alto 3 2.6% 5.1% $1,125 1 Includes cities with at least 5 apartment properties in the REALFACTS database, plus the City of East Palo Alto, which has a total of 3 apartment properties in the REALFACTS database. Source: REALFACTS; DRA. Condominium and Single-Family Home Sales Prices DQ News reports median home prices, including resale single-family residences and condos as well as new homes, by zip code for the San Francisco Bay Area. Zip code includes the City of East Palo Alto (which comprises percent of the zip code s population) and portions of the cities of Palo Alto (66.26 percent of the zip code s population), Mountain View (4.71 percent) and Menlo Park (0.03 percent). The median home price for 2012 was $470,000, and the median price per net square foot was $356, based on 448 sales. In March 2013 there were 34 sales, with a median price of $452,500 and a median price per net square foot of $400. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 29

107 Appendix Table A-4 shows sales of existing condominiums in the City of East Palo Alto from January 1, 2012 through May 1, 2013, according to data from Dataquick Information Systems. A total of 27 condo sales were recorded, at prices ranging from $129,000 to $350,000. The average price was approximately $247,000 and the median price was similar at $250,000. Unit net square footage ranged from 542 square feet to 1,510 square feet, with an average of 1,077 square feet and a median of 1,095 square feet. The price per square foot ranged from $142 to $351, with an average of $238 and a median of $232. The oldest condo was built in 1973, and the newest in Appendix Table A-5 shows sales of existing single-family homes in the City of East Palo Alto from January 1, 2012 through May 1, 2013, also according to data from Dataquick. A total of 28 home sales were recorded, at prices ranging from $130,000 to $625,000. The average price was approximately $351,000, and the median price was $345,800. Unit square footage ranged from 720 square feet to 2,190 square feet, with an average of 1,159 square feet and a median of 1,020 square feet. The price per square foot ranged from $114 to $470, with an average of $315 and a median of $304. The oldest home was built in 1924, and the newest was built in Affordability Gap Analysis The affordability gap analysis compares the cost of housing development in the City to the amount very low and low income households can afford to pay for housing. The affordability gap represents the capital subsidy required to develop housing affordable to families at target income levels. The methodology, key assumptions and findings of the affordability gap analysis are summarized below. Detailed assumptions and calculations for the affordability gap analysis are contained in Appendix Tables A-6 through A-10. The resulting affordability gaps are used in later sections of this report to estimate the maximum residential nexus fees required to mitigate new demand generated by each building type for housing affordable to low and moderate income households. Methodology The first step in the gap analysis establishes the amount a tenant or homebuyer can afford to contribute to the cost of renting or owning a dwelling unit. This analysis City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 30

108 uses the income level and affordable housing cost definitions defined in prior sections of this report. The second step estimates the costs of constructing or preserving affordable housing in the City. DRA calculated the affordability gap for three owner prototypes and one renter prototype considered representative of recent and current new multifamily and single-family development in the City. The prototypes used in this analysis are detailed in Appendix Table A-1. Affordability gaps are calculated for one-, two- and three-bedroom units for renters, and three- and fourbedroom units for owners. The third step in the gap analysis establishes the housing expenses borne by the tenants and owners. These costs can be categorized into operating costs, and financing or mortgage obligations. Operating costs are the maintenance expenses of the unit, including utilities, property maintenance, property taxes, management fees, property insurance, replacement reserve, and insurance. For the rental prototypes examined in this analysis, DRA assumed that the landlord pays all but certain tenant-paid utilities as an annual operating cost of the unit paid from rental income. For owner prototypes, DRA assumed the homebuyer pays all operating and maintenance costs for the home. Financing or mortgage obligations are the costs associated with the purchase or development of the housing unit itself. These costs occur when all or a portion of the development cost is financed. This cost is always an obligation of the landlord or owner. Supportable financing is deducted from the total development cost, less any owner equity (for owner-occupied housing, the downpayment) to determine the capital subsidy required to develop the prototypical housing unit affordable to an eligible family at each income level. For rental housing prototypes, the gap analysis calculates the difference between total development costs and the conventional mortgage supportable by net operating income from restricted rents, plus any other sources available to subsidize the housing. Recent affordable housing in the City typically has been financed using 4 percent tax credits. For these projects, tax credit equity filled about 25 percent of total project costs on affordable tax credit units. This ratio has been used to adjust the portion of the affordability gap assumed to fall to the responsibility of the developer, and to be filled by the nexus fee. For owners, the gap is the difference between development costs and the supportable mortgage plus the buyer s downpayment. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 31

109 The purpose of the gap analysis is to determine the fee amount that would be required to develop housing affordable to the very low and low income households who will need to find housing in the City in connection with new residential development in the City. Therefore, no other housing subsidies, or leverage, are assumed. Housing Development Costs DRA estimated the costs to build the new rental and owner housing prototypes based on a review of historical project cost data and interviews with developers active in the East Palo Alto Area. DRA interviewed the developers of the Nugent Square Apartments and Cummings Park Lofts regarding actual development costs for these projects, and reviewed actual construction cost pro formas for Nugent Square Apartments. DRA also interviewed the developer of the proposed Pulgas Avenue Homes regarding anticipated development costs. In addition, DRA contacted the developer of the proposed Four Corners Project, but the developer was unable to provide cost estimates at this time. DRA estimated land costs based on a review of a limited number of vacant land sales available in the City of East Palo Alto, as well as information contained in the City s current Housing Element. Estimated development costs for the prototypes are detailed in Appendix Tables A- 6 through A-9, and are summarized in Appendix Table A-10. Total per unit development costs for the housing prototypes are summarized in Table 8. Table 8 Estimated Per Unit Total Development Costs New Construction Housing Prototypes City of East Palo Alto Affordable Housing Nexus Study City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 32

110 2013 Unit Bedroom Count Prototype #1 Prototype #2 Prototype #3 Prototype #4 Single-Family Infill Owner Townhomes Stacked Flat Apartments Podium Parking Stacked Flat Condos Underground Parking One Bedroom N/A N/A $302,000 $308,000 Two Bedrooms N/A $278,000 $442,200 $391,000 Three Bedrooms N/A $340,000 N/A $586,000 Four Bedrooms $244,400 N/A N/A N/A Average 1 $244,400 $327,000 $349,000 $394,000 1 Weighted average based on the unit distribution by bedroom count for the housing prototypes in Appendix Table A-1. Source: Appendix Tables A-6 through A-9; interviews with local developers; DRA. Calculation of Per Unit Subsidy Amounts The per unit subsidy required to make new housing affordable to very low and low income residents was calculated by subtracting per unit development costs from the per unit mortgage or home price supportable from affordable rents and owner housing cost. For the rental housing prototype, we have also subtracted the estimated portion of the gap that would be covered by tax credit equity in a typical 4 percent rental tax credit project, which DRA estimates at 25 percent of total development costs. The resulting per unit subsidies required by unit bedroom count are shown for new housing development in Table 9 for very low income households, Table 10 for low income households, and Table 11 for moderate income households. Detailed calculations are shown in Appendix Tables A-7 through A-10. The results of the gap analysis show significant affordability gaps for all prototypes for very low and low income households. Given the relatively high median income for San Mateo County, there are no gaps for some unit sizes and prototypes at the moderate income level. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 33

111 Unit Bedroom Count Table 9 Per Unit Affordability Gaps Very Low Income Households New Construction Housing Prototypes City of East Palo Alto Affordable Housing Nexus Study 2013 Prototype #1 Prototype #2 Prototype #3 Prototype #4 Single-Family Infill Owner Townhomes Stacked Flat Apartments Podium Parking Stacked Flat Condos Underground Parking One Bedroom N/A N/A $127,600 $196,000 Two Bedrooms N/A $143,000 $214,500 $256,000 Three Bedrooms N/A $182,400 N/A $428,000 Four Bedrooms $244,400 N/A N/A N/A Average 1 $244,400 $174,500 $157,100 $277,000 1 Weighted average based on the unit distribution by bedroom count for the housing prototypes in Appendix Table A-1. Source: Appendix Tables A-7 through A-10; DRA. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 34

112 Unit Bedroom Count Table 10 Per Unit Affordability Gaps Low Income Households New Construction Housing Prototypes City of East Palo Alto Affordable Housing Nexus Study 2013 Prototype Prototype #1 #2 Prototype #3 Prototype #4 Single-Family Infill Owner Townhomes Stacked Flat Apartments Podium Parking Stacked Flat Condos Underground Parking One Bedroom N/A N/A $62,700 $123,000 Two Bedrooms N/A $61,600 $141,400 $174,600 Three Bedrooms N/A $92,000 N/A $338,000 Four Bedrooms $146,700 N/A N/A N/A Average 1 $146,700 $85,900 $89,400 $205,400 1 Weighted average based on the unit distribution by bedroom count for the housing prototypes in Appendix Table A-1. Source: Appendix Tables A-7 through A-10; DRA. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 35

113 Unit Bedroom Count Table 11 Per Unit Affordability Gaps Moderate Income Households New Construction Housing Prototypes City of East Palo Alto Affordable Housing Nexus Study 2013 Prototype #1 Prototype #2 Prototype #3 Prototype #4 Single-Family Infill Owner Townhomes Stacked Flat Apartments Podium Parking Stacked Flat Condos Underground Parking One Bedroom N/A N/A $0 $0 Two Bedrooms N/A $0 $68,400 $11,800 Three Bedrooms N/A $0 N/A $157,000 Four Bedrooms $0 N/A N/A N/A Average 1 $0 $0 $21,700 $62,700 1 Weighted average based on the unit distribution by bedroom count for the housing prototypes in Appendix Table A-1. Source: Appendix Tables A-7 through A-10; DRA. Residential Nexus Analysis Impact Methodology and Use of the IMPLAN Model The methodology used for the residential nexus analysis begins with the estimated sales prices of a prototypical residential subdivision and moves through a series of linkages to the incomes of the households that purchased the units, the annual expenditures of those households on goods and services, the jobs associated with the delivery of these goods and services, the income of the workers performing those jobs, the household income of those worker households, and finally to the affordability level of the housing needed by those worker households. The steps of the analysis are as follows: 10. Define a prototypical residential subdivision. 11. Estimate the household income distribution of the households purchasing these homes. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 36

114 12. Estimate the consumer expenditures of those households. 13. Estimate the number of new full-time employees required to provide the goods and services purchased by these households. 14. Estimate the number of new households associated with this employment growth. 15. Estimate the income distribution of these new employee households. 16. Estimate the number of new households requiring affordable housing. 17. Estimate the housing affordability gap for these affordable housing units. 18. Calculate the maximum supportable residential nexus fee. DRA estimated the household income distribution of households purchasing the new homes based on minimum qualifying income criteria for new loans on these units. The consumer expenditures of these households and the jobs generated by these expenditures are estimated using the IMPLAN model, a model widely used for the past 25 years to quantify employment impacts from personal income. Based on the employment generation by industry from the IMPLAN model, DRA used its nexus model to quantify the income of worker households by affordability level. THE IMPLAN MODEL The IMPLAN model is an economic analysis software package now commercially available through the Minnesota IMPLAN Group (MIG). IMPLAN was originally developed by the U.S. Forest Service, the Federal Emergency Management Agency, and the U.S. Department of the Interior Bureau of Land Management. It has been in use since 1979 and refined over time. IMPLAN has become one of the industry standards widely used across the United States to predict economic impacts in a broad range of applications from major construction projects to natural resource programs. IMPLAN s clients include more than 20 federal government agencies, 60 state agencies across the country, and academic, local government, nonprofit and private sector clients numbering in the hundreds (follow theses links to IMPLAN s Client List and Consultants Listing). IMPLAN is also the industry standard in California for use in local residential nexus impact fee analyses. The IMPLAN model projects the number of employees needed to produce a given amount of goods and services, based on actual 2007 economic data for San Mateo City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 37

115 County. More specifically, IMPLAN is based on an input-output accounting of commodity flows within an economy from producers to intermediate and final consumers. The model establishes a matrix of supply chain relationships between industries and also between households and the producers of household goods and services. The model tracks changes in purchases for final consumption through the supply chain. Industries that produce goods and services for final consumption must purchase inputs from other producers that, in turn, purchase goods and services. The model tracks these relationships through the economy to the point where leakages from the region stop the cycle. IMPLAN s industry sectoring scheme is tied to the Bureau of Economic Analysis (BEA) Input-Output Study. The most recent 2002 BEA Benchmark study uses a 440- sector scheme. This scheme approximates 6-digit North American Industrial Classification System (NAICS) for manufacturing, and is more highly aggregated for service sectors. IMPLAN data sets are available for each county and state, so the model can be tailored to the specific economic conditions of the region being analyzed. This analysis uses the most current data set for San Mateo County. Economic impacts estimated using the IMPLAN model are divided into three categories: Direct impacts result from the household spending included in the analysis. A relevant example is restaurant employment created when households in new residential buildings spend money dining out. Employment at the restaurant would be considered a direct impact. Indirect impacts result from supplier purchases made by the business operations of the companies included in the analysis. With the restaurant example, indirect impacts would include employment at food wholesalers, kitchen suppliers, and producers of agricultural products. Induced impacts result from increased demand for local-serving retail and services by the new employees. Again using the restaurant example, induced impacts would include employment generated when employees of the restaurant, food wholesaler and kitchen suppliers spend their earnings in the local economy. The IMPLAN model projections include all three of the impacts listed above. The IMPLAN Pro Guide provides an introduction to input-output analysis and further documentation on the model s assumptions and mathematical equations. (Follow these links to the Version 2 IMPLAN Pro guide and the Version 3.0 Reference Manual.) City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 38

116 Disposable Income of New Households The analysis begins with the four prototypical housing developments described above in the affordability gap analysis. The income of the new households moving into these units is estimated based on an estimated distribution of homes by sales prices or rents for each prototype. Sales prices and rents for the prototypes are estimated based on a review of recent single-family home and condo sales prices in East Palo Alto from Dataquick, with the recognition that the new high-quality product represented by the prototypes would command somewhat higher prices than most of the existing housing stock. To estimate the income distribution for the buyers of the new for-sale homes, this analysis assumes the average incomes are approximately equal to the minimum qualifying income criteria for a new-home loan. This calculation assumes that the new buyers pay a 10 percent down payment and secure a mortgage equal to 90 percent of the home s sale price. Monthly principal and interest payments on the mortgage are calculated assuming a 30-year fixed rate mortgage at 5.0 percent interest. Qualifying household income is estimated assuming households pay 35 percent of gross household income for principal, income, taxes and insurance (PITI), a typical standard used by mortgage lenders. For renters, the income distribution of tenants in the new apartments is estimated assuming tenants on average spend 33 percent of their household income for rent. The IMPLAN model used in this analysis uses disposable household income as the primary upfront input. To arrive at disposable income, gross income for residents of prototypical units must be adjusted downward to account for Federal and State income taxes, Social Security and Medicare (FICA) taxes, and personal savings. Other taxes, including sales tax, gas tax and property tax, are handled internally within the model. Housing expenses are not deducted from disposable income as they are also handled internally with the IMPLAN model. Based on a review of data from the Tax Policy Center (a joint venture of the Brookings Institution and the Urban Institute), and the California Franchise Tax Board, disposable income for households in the income levels projected for the prototypical housing tract is estimated at 75 percent of total household income. Tables 12 through 15 show the estimated income distribution, projected total household income, and projected total disposable household income of new homebuyers or renters in each of the four housing prototypes based on the above City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 39

117 assumptions. Detailed calculations for the determination of average household income from home sales prices are shown in Appendix Tables A-15 through A-22. Table 12 Estimated Income Distribution and Total Household Income of Homebuyers Prototype #1: Single-Family Infill City of East Palo Alto Income Range Number of Households Under $100,000 0 $100,001 to $110,000 0 $110,001 to $120,000 0 Average Household Income Total Household Income Total Disposable Household Income 1 $120,001 to $130, $127,747 $3,193,669 $2,395,252 $120,001 to $130, $132,745 $3,318,628 $2,488,971 $120,001 to $130,000 0 Above $150,000 0 Total $6,512,297 $4,884,222 1 Estimated at 75% of total household income, based on data from the Tax Policy Center. Source: Dataquick Information System; Tax Policy Center; Appendix Tables A-15 and A-19; DRA. Table 13 Estimated Income Distribution and Total Household Income of Homebuyers Prototype #2: Owner Townhomes City of East Palo Alto Income Range Number of Households Under $75,000 0 Average Household Income Total Household Income Total Disposable Household Income 1 $75,001 to $85, $84,621 $846,205 $634,654 $85,001 to $95, $89,619 $3,584,754 $2,688,566 $95,001 to $105,000 0 $105,001 to $115,000 0 $115,001 to $125,000 0 Above $125,000 0 Total $4,430,960 $3,323,220 1 Estimated at 75% of total household income, based on data from the Tax Policy Center. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 40

118 Source: Dataquick Information System; Tax Policy Center; Appendix Tables A-16 and A-20; DRA. Table 14 Estimated Income Distribution and Total Household Income of Renters Prototype #3: Stacked Flat Apartments, Podium Parking City of East Palo Alto Income Range Number of Households Under $70,000 0 Average Household Income Total Household Income Total Disposable Household Income 1 $70,001 to $80, $70,900 $2,340,000 $1,755,000 $80,001 to $90,000 0 $90,001 to $100, $98,200 $1,669,091 $1,251,818 Above $100,000 0 Total $4,009,091 $3,006,818 1 Estimated at 75% of total household income, based on data from the Tax Policy Center. Source: Dataquick Information System; Tax Policy Center; Appendix Tables A-17 and A-21; DRA. Table 15 Estimated Income Distribution and Total Household Income of Homebuyers Prototype #4: Stacked Flats Condos, Underground Parking City of East Palo Alto Income Range Number of Households Under $70,000 0 Average Household Income Total Household Income Total Disposable Household Income 1 $70,001 to $80, $79,622 $1,592,440 $1,194,330 $80,001 to $90, $87,119 $6,098,364 $4,573,773 $90,001 to $100,000 0 $100,001 to $110,000 0 $110,001 to $120, $114,610 $1,146,104 $859,578 Above $120,000 0 Total $8,836,908 $6,627,681 1 Estimated at 75% of total household income, based on data from the Tax Policy Center. Source: Dataquick Information System; Tax Policy Center; Appendix Tables A-18 and A-22; DRA. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 41

119 Projected Employment Generation The IMPLAN model has been applied to link household consumption expenditures to job growth occurring in the City. The IMPLAN model distributes spending among various types of goods and services, and therefore industry sectors, based on data from the Consumer Expenditure Survey and the Bureau of Economic Analysis Benchmark Input-Output study to estimate direct, indirect, and induced employment generated. The IMPLAN model also projects total industry output and payroll associated with the direct, indirect and induced impacts. The IMPLAN model input is the projected disposable income of the renters and homebuyers, shown in Table 33 above. The projected economic impacts from each residential development are summarized in Table 16. The IMPLAN model also projects total payroll associated with these new employees. Detailed projections of employment and payroll are shown in Appendix Tables A-23 through A-31. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 42

120 Table 16 Summary of Projected Economic Impacts Prototypical Housing Developments City of East Palo Alto 2013 Impact Type Direct Indirect Induced Total Prototype #1: Single-Family Infill Total Employment Total Industry Output $3,254,219 $792,616 $644,583 $4,691,418 Payroll $1,265,536 $326,822 $254,359 $1,846,717 Ave. Payroll Per Employee $54,785 $65,364 $56,524 $56,648 Prototype #2: Townhomes Total Employment Total Industry Output $2,214,168 $539,295 $438,573 $3,192,036 Payroll $861,070 $222,370 $173,065 $1,256,505 Average Payroll Per Employee $54,845 $65,403 $55,828 $56,599 Prototype #3: Stacked Flat Apts., Podium Parking Total Employment Total Industry Output $1,981,100 $484,801 $391,655 $2,857,555 Payroll $767,694 $199,940 $154,553 $1,122,187 Ave. Payroll Per Employee $54,835 $64,497 $57,242 $56,676 Prototype #4: Stacked Flat Condos, Underground Parking Total Employment Total Industry Output $4,415,836 $1,075,546 $874,671 $6,366,054 Payroll $1,717,279 $443,484 $345,154 $2,505,916 Ave. Payroll Per Employee $54,690 $65,218 $56,583 $56,567 Source: IMPLAN; Appendix Tables A-19 through A-27; DRA. ADJUSTMENT FOR FULL-TIME EMPLOYMENT The employment impacts described above include both full-time and part-time employment. IMPLAN provides conversion factors by industry sector for use in converting total employment to full-time equivalent (FTE) employment. These factors are applied to total employment projections from the IMPLAN model to produce projected FTE employment, which is used in the nexus calculation. On City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 43

121 average, FTE employment is projected to equal 88 percent of total employment projected by IMPLAN for this analysis. ADJUSTMENT FOR POTENTIAL INCREASE IN LABOR FORCE PARTICIPATION Most new workers at new establishments in the City of East Palo Alto serving new residents will come from outside of the City, given the City s small work force of only 15,865 employed persons and 1,785 unemployed persons as of Further, the region s unemployment rate has fallen since 2009, to 5.8 percent in March 2013, down from 7.4 percent a year ago 2. Therefore, DRA does not expect a significant proportion of new jobs in the City to be filled by existing unemployed residents, and we have not made an adjustment for increased labor force participation. Projected Household Growth The next step in this analysis is to translate the number of new employees into the number of employee households in the City. The 2011 Five-Year ACS indicates that San Mateo County had an average of 1.80 workers per worker household. Therefore, DRA divided the number of new employees by 1.80 to generate the number of new households. Projected Very Low and Low Income Households This step estimates the number of new employee households that will require affordable housing. The IMPLAN model provides information on payroll per employee. To estimate household incomes, DRA multiplied each payroll per employee figure by 1.80, the countywide average number of workers per worker household. This approach assumes that all workers in a household earn similar wages. The average household size in San Mateo County of the 2010 Census was 2.75 persons. 3 Therefore, this analysis uses the income limits for a three-person household of $47,500 for a very low income household, $76,000 for a low income household, and $113,940 for a moderate income household. 1 Source: three-year American Community Survey. 2 For the San Francisco-San Mateo-Redwood City Metropolitan Division (MD), from the State of California Employment Development Department. 3 Total household population of 709,598 divided by 257,837 households. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 44

122 Appendix Tables A-29 through A-32 detail the calculation of very low, low and moderate income households that would be expected to move to the City for each of the four housing prototypes. The results of these calculations, summarized in Table 17, show the estimated number of households by income level that would be expected to move to the City to provide the goods and services required by the homebuyers and renters in each prototype. Table 17 Estimated New Low and Moderate Income Employee Households Generated By New Construction Housing Prototypes City of East Palo Alto Affordable Housing Nexus Study 2013 Prototype #1 Prototype #2 Prototype #3 Prototype #4 Income Category Single-Family Infill Owner Townhomes Stacked Flat Apartments Podium Parking Stacked Flat Condos Underground Parking Very Low Income Low Income Moderate Income Total Source: Appendix Tables A-33 through A-36; DRA. Total Affordability Gap for New Households Using the projected number of households that will require affordable housing, DRA estimated the costs of providing housing to these new households using the results of the affordability gap analysis. The maximum residential nexus fees for each of the four housing prototypes are summarized in Table 18. Detailed calculations of the maximum residential nexus fees are found in Appendix Table A-33. The results of the nexus analysis show significant supportable nexus fees for all prototypes for very low and low income households. Given the relatively high median income for San Mateo County, there are no affordability gaps for some unit sizes and prototypes at the moderate income level, resulting in no to low supportable nexus fees for this income level. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 45

123 Table 18 Estimated Maximum Residential Nexus Fee Per Housing Unit By Prototypical Housing Development City of East Palo Alto 2013 Household Income Level Prototype #1 Single-Family Infill Maximum Fee Per Housing Unit Prototype #2 Townhomes Prototype #3 Stacked Flats Podium Parking Prototype #4 Stacked Flats Underground Parking Very Low Income $39,100 $20,900 $15,700 $30,500 Low Income $8,800 $3,400 $3,600 $8,200 Moderate Income $0 $0 $400 $1,900 Total $47,900 $24,300 $19,700 $40,600 Source: Appendix Table A-33; DRA. Economic Impact Analysis This section assesses the potential economic impact of an affordable housing nexus fee on market-rate residential development. The increase in cost associated with the nexus fee, however large or small, must be absorbed in one of the following three ways, or some combination of the three: 1. Through an increase in cost to the end user of the building in the form of a price or rent increase; 2. Through a decrease in profits to the developer who develops the site; and/or 3. Through a decrease in the price for the land paid to the landowner. In a competitive market, owners of residential developments are already commanding the maximum sales price or rents that the market will bear. Therefore, it is least likely that sales prices or rents will increase. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 46

124 When an additional cost is imposed on a project after the land is purchased, the developer will most likely bear the cost in terms of reduced profit on projects in the pipeline. Over time, developers will shop for the highest return on their investment within the regional market area. The total amount of development impact fees is but one of many cost and income factors that determine the rate of return for one project compared to another. Ultimately, the fee is most likely to be absorbed through a decrease in land price after the market adjusts. This may take several years as the projects already in the pipeline are completed. Given these potential alternative impacts, we use several different approaches in assessing the economic effect of a proposed nexus fee. We conduct a land residual analysis that calculates the value attributed to land from proposed development on a site, with and without a nexus fee. We also use a market and investment approach that calculates the increase in rents, or decrease in the rate of return on investor equity, required to accommodate the fee at current market terms for both debt and equity financing. Land Residual Analysis LAND RESIDUAL ANALYSIS METHODOLOGY Land residual analysis methodology calculates the value attributed to land from proposed development on that site. It is commonly used by real estate developers and investors to evaluate development financial feasibility and select among alternative uses for a piece of property. Land residual methodology calculates the value of a development based on its income potential and subtracts the costs of development and developer profit to yield the underlying value of the land. When evaluating alternative land uses, the alternative that generates the highest value to a site is considered its highest and best use. An alternative that generates a value to the land that is negative, or well below market land sales prices, is not financially feasible. DRA calculated net operating income from each housing prototype, based on estimated market sales prices for owner housing, or rents, vacancy rates and operating costs for rental housing. For the rental housing prototype, net operating income is capitalized at an assumed capitalization rate to determine the value of the developed property. The capitalization, or cap, rate is the ratio of net operating income to project fair market value, or sales price, exhibited in the market and reflects the rate of return required by investors in rental property. Total development costs are subtracted from estimated net sales proceeds for owner housing or the capitalized value of rental housing to yield the estimated residual land value. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 47

125 ASSUMPTIONS Land residual analysis requires assumptions on gross income, vacancies and operating costs, hard construction costs, tenant improvements and financing costs for each land use to be examined. These assumptions are summarized in Appendix Table A-38. Estimated annual net sales income (owner prototypes) or net operating income (renter prototype) and total development costs (excluding land) for each of the housing prototypes are shown in Appendix Table A-39. For rental housing Prototype #3, the land residual analysis assumes a cap rate of 5.60 percent. According to Cassidy Turley Commercial Real Estate Services, current capitalization rates for apartments have ranged from a low of 5.21 percent to a high of 5.80 percent over the five-quarter period from the first quarter of 2012 through and including the first quarter of The average cap rate was 5.62 percent over this period. The results of the land residual analysis are shown in Appendix Table A-40. MARKET LAND SALES PRICES The findings of the land residual analysis can be compared to recent land sales prices in the City. Appendix Table A-41 shows per square foot land sales prices for vacant residential property sold in the City between January 1, 2008 and June 28, 2012 based on data from Dataquick. Only seven land sales were recorded over this time period, with sales prices per square foot of land area ranging from a low of $17.22 to a high of $ The median price per square foot was $49.11 and the average price per square foot was $ FINDINGS AND CONCLUSIONS The findings of the land residual analysis indicate that with no affordable housing fee, residual land values are below recent land sales prices in the City of East Palo Alto for Prototype #3, Stacked Flat Rental Apartments, and are negative for Prototype #4, Stacked Flat Owner Condos. These results suggest that these prototypes are not currently feasible based on the sales price, rent and development cost assumptions used in this analysis. For Prototype #1, Single- Family Infill a nexus fee of $40,000 per unit, or $20 per net square foot of living area, an amount supported by nexus analysis, reduces residual land value by $10.00 per square foot of site area, providing residual land values within the range of recent land sales prices. For Prototype #2, Owner Townhomes, a nexus fee of $20,000 per unit, or $19 per net square foot of living area, also supported by the nexus study reduces residual land value by $9.43 per square foot of site area, providing residual land values also within the range of recent land sales prices. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 48

126 Rent and Return Analysis METHODOLOGY AND ASSUMPTIONS DRA calculated the percentage increase in sales prices or rents, and the decrease in the rate of return on investor equity, required to finance the fee at current market terms for both debt and equity financing. By applying the average financing cost to the fee at illustrative fee levels, we determine the rent increase necessary to keep returns to developers and investors constant. Alternatively, we calculate the decrease in the rate of return on equity to investors assuming rents remain constant. Total development costs for apartment construction are typically financed through a combination of debt and equity financing. A loan to value ratio of 60 percent for the first position mortgage was assumed. Current interest rates on term debt financing are approximately 6 percent or less for real estate mortgages on apartment buildings. Interest rates on debt financing are expected to remain low in the short term. Actions by the Federal Reserve are most effective in influencing short-term interest rates. For this analysis, we have assumed that equity would comprise the other 40 percent of sources used to finance total development costs. We have provided for a 12 percent return on equity, which is within the range of current returns on real estate investment trusts (REITs). Based on DRA s substantial experience with REITs, recent returns are generally in the 7 percent to 9 percent range for apartments. However, new development is likely to require rates at the upper end of that range because of the development risk. The average financing cost of capital based on a 6 percent interest rate for a 60 percent loan-to-value mortgage and a 12 percent return on equity for the remaining 40 percent of sources is approximately 8.4 percent. After calculating the increase in sales prices or rents required to finance the development impact fee at illustrative levels, we calculated the increase in sales prices or rents as a percentage of current market sales prices or rents. We use the percentage increase in sales prices or rents as a measure of the magnitude of the impact of the fee. As a secondary measure, our evaluation also examines the fee at alternative levels as a percentage of total development costs for each land use. The income and cost assumptions for each prototype are the same used in the land residual analysis above. Total development costs were estimated by adding the construction costs for each prototype from Appendix Table A-39 to estimated market land values for the residential prototypes. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 49

127 The findings of the rent analysis are summarized in Appendix Table A-42. The findings of the rate of return analysis are summarized in Appendix Table A-43. FINDINGS AND CONCLUSIONS As noted above, DRA believes that a change in rents due to the imposition of a nexus fee is the least likely market outcome. For project sites already owned by their developers (as opposed to those yet to be purchased by a developer), a reduction in the rate of return on their investment may occur. An impact fee of $20,000 on rental Prototype #3 reduces the rate of return on equity from percent to percent, a reduction that DRA does not consider significant. City of East Palo Alto Affordable Housing Nexus Study July 10, 2014 Final Report 50

128 Appendix A Tables East Palo Alto Affordable Housing Nexus Analysis City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 51

129 Table A-1 Housing Prototype Projects City of East Palo Alto Residential Nexus Fee Analysis 2013 Prototype #1 Prototype #2 Prototype #3 Prototype #4 Stacked Flat Apts. Stacked Flats Condos PROTOTYPE Single-Family Infill Owner Townhomes Podium Parking Underground Parking Tenure Owner Owner Rental Owner Unit Count 50 Units 50 Units 50 Units 100 Units Type of Product Single-Family Infill PUD Townhomes Stacked flats over podium parking Stacked flats with subterranean and structured parking Number of Stories/ 2 Stories 2 Stories Type of Parking Garages Garages Podium Subterranean Construction Type Type V Type V Type V Type V Density (DU's/Net Acre) Land Area (Acres) Units by Bedroom Count One Bedroom Two Bedroom/1 Bath Two Bedroom/2 Bath Three Bedroom Four Bedroom Percent of Units by Bedroom Count One Bedroom 0% 0% 66% 20% Two Bedroom/1 Bath 0% 0% 0% 0% Two Bedroom/2 Bath 0% 20% 34% 70% Three Bedroom 0% 80% 0% 10% Four Bedroom 100% 0% 0% 0% Unit Size (Net Square Feet) One Bedroom Two Bedroom/1 Bath Two Bedroom/2 Bath 900 1, Three Bedroom 1,100 1,350 Four Bedroom 2,000 Average Unit Square Feet 2,000 1, Building Square Feet Net Living Area 100,000 53,000 43,450 90,700 Community Space 3,000 15,000 Total Net Bldg. Square Feet 100,000 53,000 46, ,700 Number of Parking Spaces Parking Spaces Per Housing Unit Source: City of East Palo Alto; David Paul Rosen & Associates City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 52

130 Table A-2 Affordable Rents and Prototype Supportable Mortgage Renter Prototype City of East Palo Alto Residential Nexus Fee Analysis 2013 Assumptions 2013 Median Income, San Mateo County $105,500 Affordable Housing Cost As a % of Income 30% Project Vacancy Rate 5% Annual Operating Cost Per Unit $4,200 Debt Coverage Ratio 1.15 Mortgage Interest Rate 5% Mortgage Term 30 No. of Bedrooms One Bedroom Two Bedroom Three Bedroom Household Size Adjustment 2 Persons 3 Persons 4 Persons Household Size Income Adjust. Factor (1) 80% 90% 100% Renter Utility Allowance (2) $44 $57 $74 No. of Units in Renter Prototype Affordable Rents by Income Level One Bedroom Two Bedroom Three Bedroom Very Low Income 50% of Median Annual Gross Income $42,200 $47,475 $52,750 Affordable Monthly Housing Cost $1,055 $1,187 $1,319 Less: Monthly Utility Allowance ($44) ($57) ($74) Affordable Monthly Rent $1,011 $1,130 $1,245 Low Income 70% of Median Annual Gross Income $59,080 $66,465 $73,850 Affordable Monthly Housing Cost $1,477 $1,662 $1,846 Less: Monthly Utility Allowance ($44) ($57) ($74) Affordable Monthly Rent $1,433 $1,605 $1,772 Moderate Income 90% of Median Annual Gross Income $75,960 $85,455 $94,950 Affordable Monthly Housing Cost $1,899 $2,136 $2,374 Less: Monthly Utility Allowance ($44) ($57) ($74) Affordable Monthly Rent $1,855 $2,079 $2,300 Estimated Prototype Supportable Mortgage Very Low Income Low Income Moderate Income Projected Total Gross Project Rents $630,876 $894,888 $1,158,696 Less: Vacancies ($31,544) ($44,744) ($57,935) Less: Operating Costs ($210,000) ($210,000) ($210,000) Net Operating Income $389,332 $640,144 $890,761 Affordable First Mortgage $5,255,466 $8,641,086 $12,024,090 (1) HUD published factors for adjusting household income by household size. (2) Assumes electric heating and "other electric" and natural gas cooking and water heating. Source: San Mateo County Housing Authority, effective 11/01/2012. Source: DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 53

131 Table A-3 Affordable Mortgage By Income Level Owner Housing Prototypes City of East Palo Alto Residential Nexus Fee Analysis 2013 ASSUMPTIONS 2013 Median Income, San Mateo County $105,500 Affordable Housing Cost As a % of Income 30% No. of Bedrooms 1 Bedroom 2 Bedroom 3 Bedroom 4 Bedroom Household Size, Health and Safety Code 2 Persons 3 Persons 4 Persons 5 Persons Household Size Income Adjust. Factor 80% 90% 100% 108% Monthly HOA Fee/Maint. Cost $300 Monthly Property Insurance $100 Property Tax Rate 1.20% Downpayment as a % of Affordable Home Price 10.00% Mortgage Interest Rate 5.00% Term (Years) 30 AFFORDABLE HOUSING PAYMENT (PITI) 1 Bedroom 2 Bedroom 3 Bedroom 4 Bedroom Very Low Income 50% AMI Annual Gross Income $42,200 $47,475 $52,750 $56,970 Affordable Monthly Housing Cost 30% $1,055 $1,187 $1,319 $1,424 Less: HOA/Maintenance Expense ($300) ($300) ($300) ($300) Less: Property Insurance ($100) ($100) ($100) ($100) Less: Property Taxes/Assessments (1) 1.20% ($112) ($135) ($158) ($176) Available for Principal and Interest $543 $652 $761 $848 Supportable Mortgage $101,091 $121,463 $141,836 $158,041 Afford. Sales Price w/ 10.00% $112,323 $134,959 $157,595 $175,601 Low Income 70% AMI Annual Gross Income $59,080 $66,465 $73,850 $79,758 Affordable Monthly Housing Cost 30% $1,477 $1,662 $1,846 $1,994 Less: HOA/Maintenance Expense ($300) ($300) ($300) ($300) Less: Property Insurance ($100) ($100) ($100) ($100) Less: Property Taxes/Assessments (1) 1.20% ($185) ($216) ($248) ($273) Available for Principal and Interest $892 $1,046 $1,198 $1,321 Supportable Mortgage $166,221 $194,773 $223,171 $246,013 Afford. Sales Price w/ 10.00% $184,690 $216,415 $247,968 $273,348 Moderate Income 110% AMI Annual Gross Income $92,840 $104,445 $116,050 $125,334 Affordable Monthly Housing Cost 30% $2,321 $2,611 $2,901 $3,133 Less: HOA/Maintenance Expense ($300) ($300) ($300) ($300) Less: Property Insurance ($100) ($100) ($100) ($100) Less: Property Taxes/Assessments (1) 1.20% ($329) ($379) ($429) ($469) Available for Principal, Interest, Taxes $1,592 $1,832 $2,072 $2,264 Supportable Mortgage $296,481 $341,239 $385,997 $421,803 Afford. Sales Price w/ 10.00% $329,424 $379,155 $428,885 $468,670 (1) HUD published factors for adjusting household income by household size. (2) Property taxes calculated based on assessed value equal to affordable sales price with downpayment. Source: DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 54

132 Table A-4 Condominium Sales City of East Palo Alto January 1, May 1, 2013 No. of No. of No. of Year Total Sales Unit Price Per No. Zip Code Address Parcel No. Sale Date Stories Bedrooms Baths Built Price Sq. Ft. Sq. Ft Newell Rd., # /16/ $290,000 1,122 $ Newell Rd /24/ $260,000 1,009 $ Mission Dr /4/ $350,000 1,510 $ Mission Dr /27/ $320,000 1,510 $ Mission Dr /21/ $240,000 1,510 $ Mission Dr /12/ $270,000 1,510 $ Mission Dr /5/ $275,000 1,280 $ E. Okeefe St /22/ $129, $ E. Okeefe St /14/ $131, $ Gloria Way /21/ $156,000 1,095 $ Gloria Way /22/ $209,000 1,095 $ W. Bayshore Rd., # /15/ $233, $ W. Bayshore Rd., # /7/ $250, $ W. Bayshore Rd., # /29/ $251, $ W. Bayshore Rd., # /28/ $190,200 1,157 $ W. Bayshore Rd., # /8/ $237,500 1,197 $ W. Bayshore Rd., # /26/ $250, $ W. Bayshore Rd., # /25/ $180, $ University Ave., # /7/ $210, $ University Ave., # /28/ $265,000 1,402 $ University Ave., # /24/ $211,500 1,201 $ University Ave., # /30/ $233,000 1,195 $ E. Bayshore Rd., # /31/ $320, $ E. Bayshore Rd., # /22/ $331, $ E. Bayshore Rd., # /31/ $270,000 1,155 $ E. Bayshore Rd /16/ $275,000 1,176 $ E. Bayshore Rd., # /3/ $333, $ Bottom of Range $129, $ Top of Range $350,000 1,510 $ Average $247,119 1,077 $ Median $250,000 1,095 $ Source: Dataquick Information Systems; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 55

133 Table A-5 Single-Family Home Sales City of East Palo Alto January 1, May 1, 2013 No. of No. of No. of Lot Size Year Total Sales Unit Price Per No. Zip Code Address Parcel No. Sale Date Stories Bedrooms Baths (Sq. Ft.) Built Price Sq. Ft. Sq. Ft Cooley Ave /30/ , $225, $ Palo Verde Ave /4/ , $356, $ Bay Rd /18/ , $335,643 1,140 $ Addison Ave /1/ , $405, $ Dumbarton Ave /13/ , $290, $ Poplar Ave /29/ , $390,000 1,120 $ Lincoln St /29/ , $329,000 1,940 $ Poplar Ave /2/ , $315,000 1,010 $ Gardenia Way /1/ , $380,000 1,360 $ Illinois St /7/ , $250,000 1,030 $ Wisteria Dr /25/ , $290,000 1,110 $ Baylor St /15/ , $445,000 1,010 $ Fordham St /7/ , $260,000 1,010 $ Oakwood Dr /30/ , $460, $ Daphne Way /28/ , $290, $ Ruth Ct /7/ , $260, $ Ruth Ct /28/ , $420, $ Runnymede St /10/ , $320, $ Oconnor St /24/ , $298, $ Gardenia Way /1/ , $400,000 1,020 $ Donohoe St /5/ , $358,000 1,320 $ Sage St /6/ , $416,000 1,020 $ Kavanaugh Dr /29/ , $410,000 1,100 $ Emmett Way /22/ , $215,000 1,100 $ Farrington Way /4/ , $385,100 1,770 $ Baines St /18/ , $570,000 2,020 $ Bottom of Range $215, $ Top of Range $570,000 2,020 $ Average $348,991 1,120 $ Median $345,822 1,015 $ Source: Dataquick Information Systems; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 56

134 Table A-6 Estimated Development Costs Owner Prototype #1 Single-Family Infill City of East Palo Alto Residential Nexus Fee Analysis Land Acquisition Costs 217,800 Sf Land $25 /SF Land $5,445,000 Direct Costs On-Site Improvements 50 Units $60,000 /Unit 3,000,000 Building Shell 100,000 NSF $60.00 /NSF 6,000,000 Total Direct Costs $ /NSF $9,000,000 Indirect Costs Architecture, Eng. & Consulting 6.0% Direct Costs $540,000 Permits & Fees 3 50 Units $23,000 /Unit 1,150,000 Taxes, Ins, Legal & Acctg 3.0% Direct Costs 270,000 Marketing/Sales Office $50,000 Allowance 50,000 Development Management 2.0% Direct Costs 180,000 Contingency Allowance 3.0% Direct Costs 270,000 Total Indirect Costs $2,460,000 Financing/Closing Costs Interest + Loan Origination Fees 1 50 Units $28,400 /Unit $1,420,000 Brokerage/Closing Costs/Warranties 50 Units $15,000 /Unit 750,000 Total Financing/Closing Costs $2,170,000 Developer Overhead & Profit 10.0% Development Costs $1,907,500 Total Development Costs 50 Units $419,650 /Unit $20,982,500 $ Financing assumptions: Average interest/equity rate: 8.40% Construction/absorption period (mos.) 12 Source: DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 57

135 Table A-7 Estimated Development Costs Owner Prototype #2 Owner Townhomes City of East Palo Alto Residential Nexus Fee Analysis Land Acquisition Costs 217,800 Sf Land $25 /SF Land $5,445,000 Direct Costs On-Site Improvements 50 Units $30,000 /Unit 1,500,000 Building Shell 53,000 NSF $80.00 /NSF 4,240,000 Total Direct Costs $ /NSF $5,740,000 Indirect Costs Architecture, Eng. & Consulting 6.0% Direct Costs $344,400 Permits & Fees 3 50 Units $20,000 /Unit 1,000,000 Taxes, Ins, Legal & Acctg 3.0% Direct Costs 172,200 Marketing/Sales Office $50,000 Allowance 50,000 Development Management 2.0% Direct Costs 114,800 Contingency Allowance 3.0% Direct Costs 172,200 Total Indirect Costs $1,853,600 Financing/Closing Costs Interest + Loan Origination Fees 1 50 Units $21,900 /Unit $1,095,000 Brokerage/Closing Costs/Warranties 50 Units $15,000 /Unit 750,000 Total Financing/Closing Costs $1,845,000 Developer Overhead & Profit 10.0% Development Costs $1,488,360 Total Development Costs 50 Units $327,439 /Unit $16,371,960 $ /NSF 1 Financing assumptions: Average interest/equity rate: 8.40% Construction/absorption period (mos.) 12 Source: DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 58

136 Table A-8 Estimated Development Costs Renter Prototype #3 Stacked Flat Apts. Podium Parking City of East Palo Alto Residential Nexus Fee Analysis Land Acquisition Costs 43,560 Sf Land $25 /SF Land $1,089,000 Direct Costs 1 On-Site Improvements 50 Units $24,000 /Unit 1,200,000 Garage/Podium Parking Structure 50 Units $51,000 /Unit 2,550,000 Building Shell 43,450 NSF Living Area $ /NSF 6,604,400 Total Direct Costs $ /NSF $10,354,400 Indirect Costs Architecture, Eng. & Consulting 6.0% Direct Costs $621,264 Permits & Fees 3 50 Units $15,000 /Unit 750,000 Taxes, Ins, Legal & Acctg 3.0% Direct Costs 310,632 Contingency Allowance 3.0% Direct Costs 310,632 Total Indirect Costs $1,992,528 Financing/Closing Costs Interest + Loan Origination Fees 2 50 Units $33,860 /Unit $1,693,000 Brokerage/Closing Costs/Warranties 50 Units $15,000 /Unit 750,000 Total Financing/Closing Costs $2,443,000 Developer Overhead & Profit 10.0% Development Costs $1,587,893 Total Development Costs 50 Units $349,336 /Unit $17,466,821 $ /NSF 1 Based on actual hard costs for Nugent Square Apartments escalated 45% per the Engineering News Record (ENR) construction cost index from 2001 to Financing assumptions: Average interest/equity rate: 8.40% Construction/absorption period (mos.) 18 Source: DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 59

137 Table A-9 Estimated Development Costs Owner Prototype #4 Stacked Flats Condos Underground Parking City of East Palo Alto Residential Nexus Fee Analysis Land Acquisition Costs 62,204 Sf Land $25 /SF Land $1,555,092 Direct Costs On-Site Improvements 100 Units $30,000 /Unit 3,000,000 Subterranean Parking Structure 100 Units $60,000 /Unit 6,000,000 Building Shell 90,700 NSF Living Area $ /NSF 13,786,400 Total Direct Costs $ /NSF $22,786,400 Indirect Costs Architecture, Eng. & Consulting 6.0% Direct Costs $1,367,184 Permits & Fees Units $18,000 /Unit 1,800,000 Taxes, Ins, Legal & Acctg 3.0% Direct Costs 683,592 Marketing/Sales Office $50,000 Allowance 50,000 Development Management 2.0% Direct Costs 455,728 Contingency Allowance 3.0% Direct Costs 683,592 Total Indirect Costs $5,040,096 Financing/Closing Costs Interest + Loan Origination Fees Units $49,361 /Unit $4,936,107 Brokerage/Closing Costs/Warranties 100 Units $15,000 /Unit 1,500,000 Total Financing/Closing Costs $6,436,107 Developer Overhead & Profit 10.0% Development Costs $3,581,769 Total Development Costs 100 Units $393,995 /Unit $39,399,464 $ /NSF 1 Financing assumptions: Average interest/equity rate: 8.40% Construction/absorption period (mos.) 24 Source: DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 60

138 Table A-10 Summary of Per Unit and Per Square Foot Total Development Costs New Owner and Renter Housing Prototype Units City of East Palo Alto Residential Nexus Fee Analysis 2013 Unit Bedroom Count Two Bedroom/ Weighted Prototype One Bedroom Two Bath Three Bedroom Four Bedroom Average (1) Prototype #1 Single-Family Infill Owner Unit SF 2,000 2,000 Cost per SF $ $ Cost per Unit $420,000 $420,000 Prototype #2 Owner Townhomes Owner Unit SF 900 1,100 1,060 Cost per SF $ $ $ Cost per Unit $278,000 $340,000 $327,000 Prototype #3 Stacked Flat Apts. Podium Parking Rental Unit SF 750 1, Cost per SF $ $ $ Cost per Unit $302,000 $442,200 $349,000 Prototype #4 Stacked Flats Condos Underground Parking Owner Unit SF , Cost per SF $ $ $ $ Cost per Unit $308,000 $391,000 $586,000 $394,000 N/A = Not Applicable (1) Weighted average based on distribution of units by bedroom count for prototypical housing developments. Source: Appendix Tables A-6 through A-9; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 61

139 Table A-11 Owner Housing Affordability Gap Calculations Prototype #1 Single-Family Infill City of East Palo Alto Residential Nexus Fee Analysis 2013 Income Level No. of BR Unit SF Maximum Monthly Housing Cost Affordable Sales Price Per Unit (2) Total Development Cost Per Unit (3) Total Units Total Affordable Sales Price Total Development Cost (3) Affordability Gap Gap Per Unit Very Low Income 3 0 $1,319 $157,600 $0 0 $0 $0 $0 $0 Low Income 3 0 $1,846 $248,000 $0 0 $0 $0 $0 $0 Moderate Income 3 0 $2,901 $428,900 $0 0 $0 $0 $0 $0 Very Low Income 4 2,000 $1,424 $175,600 $420, $8,780,000 $21,000,000 $12,220,000 $244,400 Low Income 4 2,000 $1,994 $273,300 $420, $13,665,000 $21,000,000 $7,335,000 $146,700 Moderate Income 4 2,000 $3,133 $468,700 $420, $23,435,000 $21,000,000 ($2,435,000) ($48,700) Very Low Income Low Income Moderate Income Weighted Average (1) 2,000 $1,424 $166,600 $420, $8,780,000 $21,000,000 $12,220,000 $244,400 Weighted Average (1) 2,000 $1,994 $260,650 $420, $13,665,000 $21,000,000 $7,335,000 $146,700 Weighted Average (1) 2,000 $3,133 $448,800 $420, $23,435,000 $21,000,000 ($2,435,000) ($48,700) (1) Weighted average based on unit distribution by bedroom count for the owner housing prototype. (2) From Table A-3. (3) From Table A-6. Source: DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 62

140 Table A-12 Owner Housing Affordability Gap Calculations Prototype #2 Owner Townhomes City of East Palo Alto Residential Nexus Fee Analysis 2013 Income Level No. of BR Unit SF Maximum Monthly Housing Cost Affordable Sales Price Per Unit (2) Total Development Cost Per Unit (3) Total Units Total Affordable Sales Price Total Development Cost (3) Affordability Gap Gap Per Unit Very Low Income $1,187 $135,000 $278, $1,350,000 $2,780,000 $1,430,000 $143,000 Low Income $1,662 $216,400 $278, $2,164,000 $2,780,000 $616,000 $61,600 Moderate Income $2,611 $379,200 $278, $3,792,000 $2,780,000 ($1,012,000) ($101,200) Very Low Income 3 1,100 $1,319 $157,600 $340, $6,304,000 $13,600,000 $7,296,000 $182,400 Low Income 3 1,100 $1,846 $248,000 $340, $9,920,000 $13,600,000 $3,680,000 $92,000 Moderate Income 3 1,100 $2,901 $428,900 $340, $17,156,000 $13,600,000 ($3,556,000) ($88,900) Very Low Income Low Income Moderate Income Weighted Average (1) 1,060 $1,293 $146,300 $327, $7,654,000 $16,380,000 $8,726,000 $174,520 Weighted Average (1) 1,060 $1,809 $232,200 $327, $12,084,000 $16,380,000 $4,296,000 $85,920 Weighted Average (1) 1,060 $2,843 $404,050 $327, $20,948,000 $16,380,000 ($4,568,000) ($91,360) (1) Weighted average based on unit distribution by bedroom count for the owner housing prototype. (2) From Table A-3. (3) From Table A-7. Source: DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 63

141 Table A-13 Rental Housing Affordability Gap Calculations Prototype 3 Stacked Flat Apts. Podium Parking City of East Palo Alto Residential Nexus Fee Analysis 2013 Income Level No. of BR/BA Unit SF Total Units Development Cost Per Unit (1) Maximum Monthly Rent Per Unit Project Gross Income Annual Net Operating Income (2) Affordable First Mortgage (3) Tax Credit Equity (4) Development Cost (5) Affordability Gap Gap Per Unit Very Low Income 1/ $302,000 $1,011 $400,356 $241,738 $3,263,144 $2,491,500 $9,966,000 $4,211,356 $127,617 Low Income 1/ $302,000 $1,433 $567,468 $400,495 $5,406,144 $2,491,500 $9,966,000 $2,068,356 $62,677 Moderate Income 1/ $302,000 $1,855 $734,580 $559,251 $7,549,144 $2,491,500 $9,966,000 ($74,644) ($2,262) Very Low Income 2/2 1, $442,200 $1,130 $230,520 $147,594 $1,992,322 $1,879,350 $7,517,400 $3,645,728 $214,455 Low Income 2/2 1, $442,200 $1,605 $327,420 $239,649 $3,234,942 $1,879,350 $7,517,400 $2,403,108 $141,359 Moderate Income 2/2 1, $442,200 $2,079 $424,116 $331,510 $4,474,946 $1,879,350 $7,517,400 $1,163,104 $68,418 Very Low Income 3/ $1,245 $0 $0 $0 $0 $0 $0 $0 Low Income 3/ $1,772 $0 $0 $0 $0 $0 $0 $0 Moderate Income 3/ $2,300 $0 $0 $0 $0 $0 $0 $0 Very Low Income Weighted Average (1) $349,668 $1,051 $630,876 $389,332 $5,255,466 $4,370,850 $17,483,400 $7,857,084 $157,142 Low Income Weighted Average (1) $349,668 $1,491 $894,888 $640,144 $8,641,086 $4,370,850 $17,483,400 $4,471,464 $89,429 Moderate Income Weighted Average (1) $349,668 $1,931 $1,158,696 $890,761 $12,024,090 $4,370,850 $17,483,400 $1,088,460 $21,769 (1) Weighted average based on unit distribution by bedroom count for the renter housing prototype. (2) Net operating income projected based on the following assumptions: Vacancy rate: 5% Annual operating expense/unit: $4,200 (3) Affordable first mortgage from Table A-2 based on following financing terms: Debt Coverage Ratio: 1.15 Mortgage interest rate: 5% Mortgage Term: 30 (4) Estimated at 25% of development cost( for very low and low income households only) based on recent 4% tax credit rental housing developments in the San Francisco Bay area. (5) From Table A-3. (6) From Table A-8. Source: DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 64

142 Table A-14 Owner Housing Affordability Gap Calculations Prototype #4 Stacked Flats Condos Underground Parking City of East Palo Alto Residential Nexus Fee Analysis 2013 Income Level No. of BR Unit SF Maximum Monthly Housing Cost Affordable Sales Price Per Unit (2) Total Development Total Affordable Cost Per Unit Total Units Sales Price Total Development Cost (3) Affordability Gap Gap Per Unit Very Low Income $1,055 $112,000 $308, $2,240,000 $6,160,000 $3,920,000 $196,000 Low Income $1,477 $185,000 $308, $3,700,000 $6,160,000 $2,460,000 $123,000 Moderate Income $2,321 $329,000 $308, $6,580,000 $6,160,000 ($420,000) ($21,000) Very Low Income $1,187 $135,000 $391, $9,450,000 $27,370,000 $17,920,000 $256,000 Low Income $1,662 $216,400 $391, $15,148,000 $27,370,000 $12,222,000 $174,600 Moderate Income $2,611 $379,200 $391, $26,544,000 $27,370,000 $826,000 $11,800 Very Low Income 3 1,350 $1,319 $158,000 $586, $1,580,000 $5,860,000 $4,280,000 $428,000 Low Income 3 1,350 $1,846 $248,000 $586, $2,480,000 $5,860,000 $3,380,000 $338,000 Moderate Income 3 1,350 $2,901 $429,000 $586, $4,290,000 $5,860,000 $1,570,000 $157,000 Very Low Income Low Income Moderate Income Weighted Average (1) 907 $1,042 $116,900 $393, $11,690,000 $39,390,000 $27,700,000 $277,000 Weighted Average (1) 907 $1,459 $200,700 $393, $18,848,000 $39,390,000 $20,542,000 $205,420 Weighted Average (1) 907 $2,292 $354,100 $393, $33,124,000 $39,390,000 $6,266,000 $62,660 (1) Weighted average based on unit distribution by bedroom count for the owner housing prototype. (2) From Table A-3. (3) From Table A-9. Source: DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 65

143 Table A-15 Projected Home Sales Prices and Household Income Distribution of New Homebuyers Prototype #1 Single-Family Infill City of East Palo Alto Residential Nexus Fee Analysis 2013 Home Price Range # of Sales (1) % of Sales Mortgage Amount (2) Monthly P&I Payment (3) Monthly Prop Taxes (4) Monthly HOA Plus Insurance (5) Total Monthly Housing Cost Estimated Average Annual Income (6) Gross Home Sales Proceeds $450,001 $475,000 0% $416,250 $2,235 $463 $300 $2,997 $102,755 $0 $475,001 $500,000 0% $438,750 $2,355 $488 $300 $3,143 $107,753 $0 $500,001 $525,000 0% $461,250 $2,476 $513 $300 $3,289 $112,752 $0 $525,001 $550,000 0% $483,750 $2,597 $538 $300 $3,434 $117,750 $0 $550,001 $575,000 0% $506,250 $2,718 $563 $300 $3,580 $122,748 $0 $575,001 $600, % $528,750 $2,838 $588 $300 $3,726 $127,747 $14,687,513 $600,001 $625, % $551,250 $2,959 $613 $300 $3,872 $132,745 $15,312,513 $625,001 $650,000 0% $573,750 $3,080 $638 $300 $4,018 $137,743 $0 $650,001 $675,000 0% $596,250 $3,201 $663 $300 $4,163 $142,742 $0 $675,001 $700,000 0% $618,750 $3,322 $688 $300 $4,309 $147,740 $0 $700,001 $725,000 0% $641,250 $3,442 $713 $300 $4,455 $152,738 $0 $725,001 Or More 0% $652,501 $3,503 $725 $300 $4,528 $155,238 $0 TOTAL % $30,000,025 (1) Estimated sales price distribution of homes for this prototype. (2) At a 90% loan to value (price) ratio, assuming a 10% buyer downpayment. (3) Monthly mortgage principal and interest payment assuming a 5% fixed-rate loan for 30 years. (4) Monthly property taxes estimated at 1.2% annual tax rate, including special assessments. (5) Estimated at $300 per month. (6) Assumes principal, interest, taxes and insurance (PITI) at 35% of gross annual household income. Source: Dataquick Information Systems; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 66

144 Table A-16 Projected Home Sales Prices and Household Income Distribution of New Homebuyers Prototype #2 Owner Townhomes City of East Palo Alto Residential Nexus Fee Analysis 2013 Home Price Range # of Sales (1) % of Sales Mortgage Amount (2) Monthly P&I Payment (3) Monthly Prop Taxes (4) Monthly HOA Plus Insurance (5) Total Monthly Housing Cost Estimated Average Annual HH Income (6) $250,001 $275,000 0% $236,250 $1,268 $263 $500 $2,031 $69,626 $275,001 $300,000 0% $258,750 $1,389 $288 $500 $2,177 $74,624 $300,001 $325,000 0% $281,250 $1,510 $313 $500 $2,322 $79,622 $325,001 $350, % $303,750 $1,631 $338 $500 $2,468 $84,621 $350,001 $375, % $326,250 $1,751 $363 $500 $2,614 $89,619 $375,001 $400,000 0% $348,750 $1,872 $388 $500 $2,760 $94,617 $400,001 $425,000 0% $371,250 $1,993 $413 $500 $2,905 $99,616 $425,001 $450,000 0% $393,750 $2,114 $438 $500 $3,051 $104,614 $450,001 $475,000 0% $416,250 $2,235 $463 $500 $3,197 $109,612 $475,001 $500,000 0% $438,750 $2,355 $488 $500 $3,343 $114,611 $500,001 $525,000 0% $461,250 $2,476 $513 $500 $3,489 $119,609 $525,001 Or More 0% $472,501 $2,536 $525 $500 $3,561 $122,108 TOTAL % (1) Estimated sales price distribution of homes for this prototype. (2) At a 90% loan to value (price) ratio, assuming a 10% buyer downpayment. (3) Monthly mortgage principal and interest payment assuming a 5% fixed-rate loan for 30 years. (4) Monthly property taxes estimated at 1.2% annual tax rate, including special assessments. (5) Estimated at $500 per month. (6) Assumes principal, interest, taxes and insurance (PITI) at 35% of gross annual household income. Source: Dataquick Information Systems; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 67

145 Table A-17 Projected Rents and Household Income Distribution of New Rental Housing Tenants Prototype #3 Stacked Flat Apts. Podium Parking City of East Palo Alto Residential Nexus Fee Analysis 2013 Unit Bedroom Count # of Units (1) % of Units Average Rent Annual Housing Cost Estimated Average Annual HH Income (2) 1 BR 33 66% $1,950 $23,400 $70,909 2 BR/1 BA 0 0% $2,200 $26,400 $80,000 2 BR/2 BA 17 34% $2,700 $32,400 $98,182 3 BR 0 0% $3,300 $39,600 $120,000 4 BR 0 0% $0 $0 $ % (1) Bedroom count distribution for Prototype #3. (2) Qualifying income estimated at 3 times rent plus utilities. Source: REALFACTS; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 68

146 Table A-18 Projected Home Sales Prices and Household Income Distribution of New Homebuyers Prototype #4 Stacked Flats Condos Underground Parking City of East Palo Alto Residential Nexus Fee Analysis 2013 Home Price Range # of Sales (1) % of Sales Mortgage Amount (2) Monthly P&I Payment (3) Monthly Prop Taxes (4) Monthly HOA Plus Insurance (5) Total Monthly Housing Cost Estimated Average Annual HH Income (6) $250,000 $274,999 0% $236,250 $1,268 $262 $500 $2,031 $69,625 $275,000 $299,999 0% $258,750 $1,389 $287 $500 $2,177 $74,624 $300,000 $324, % $281,250 $1,510 $312 $500 $2,322 $79,622 $325,000 $349, % $303,750 $1,631 $337 $500 $2,468 $84,620 $350,000 $374, % $326,250 $1,751 $362 $500 $2,614 $89,619 $375,000 $399,999 0% $348,750 $1,872 $387 $500 $2,760 $94,617 $400,000 $424,999 0% $371,250 $1,993 $412 $500 $2,905 $99,615 $425,000 $449,999 0% $393,750 $2,114 $437 $500 $3,051 $104,614 $450,000 $474,999 0% $416,250 $2,235 $462 $500 $3,197 $109,612 $475,000 $499, % $438,750 $2,355 $487 $500 $3,343 $114,610 $500,000 Or More 0% $450,000 $2,416 $500 $500 $3,416 $117,110 TOTAL % (1) Estimated sales price distribution of homes for this prototype. (2) At a 90% loan to value (price) ratio, assuming a 10% buyer downpayment. (3) Monthly mortgage principal and interest payment assuming a 5% fixed-rate loan for 30 years. (4) Monthly property taxes estimated at 1.2% annual tax rate, including special assessments. (5) Estimated at $500 per month. (6) Assumes principal, interest, taxes and insurance (PITI) at 35% of gross annual household income. Source: Dataquick Information Systems; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 69

147 Table A-19 Estimated Total Household Income of New Homebuyers Prototype #1 Single-Family Infill City of East Palo Alto Residential Nexus Fee Analysis 2013 Income Range Number of Households (1) Average Income (2) Total Household Income % Disposable Income Total Disposable Household Income Under $100,000 0 $0 $0 75% $0 $100,001 $110,000 0 $105,254 $0 75% $0 $110,001 $120,000 0 $115,251 $0 75% $0 $120,001 $130, $127,747 $3,193,669 75% $2,395,252 $130,001 $140, $132,745 $3,318,628 75% $2,488,971 $140,001 $150,000 0 $145,241 $0 75% $0 $150,001 Or More 0 $152,738 $0 75% $0 Total 50 $6,512,297 $4,884,222 (1) From Table A-15. (2) Weighted average for income range based on projections of average annual income in Table A-11. Source: DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 70

148 Table A-20 Estimated Total Household Income of New Homebuyers Prototype #2 Owner Townhomes City of East Palo Alto Residential Nexus Fee Analysis 2013 Income Range Number of Households (1) Average Income (2) Total Household Income % Disposable Income Total Disposable Household Income Under $75,000 0 $74,624 $0 75% $0 $75,001 $85, $84,621 $846,205 75% $634,654 $85,001 $95, $89,619 $3,584,754 75% $2,688,566 $95,001 $105,000 0 $99,616 $0 75% $0 $105,001 $115,000 0 $109,612 $0 75% $0 $115,001 $125,000 0 $119,609 $0 75% $0 $125,001 Or More 0 $0 $0 75% $0 Total 50 $4,430,960 $3,323,220 (1) From Table A-16. (2) Weighted average for income range based on projections of average annual income in Table A-12. Source: DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 71

149 Table A-21 Estimated Total Household Income of New Homebuyers Prototype #3 Stacked Flat Apts. Podium Parking City of East Palo Alto Residential Nexus Fee Analysis 2013 Income Range Number of Households (1) Average Income (2) Total Household Income % Disposable Income Total Disposable Household Income Under $40,000 0 $0 $0 75% $0 $40,001 $50,000 0 $0 $0 75% $0 $50,001 $60,000 0 $0 $0 75% $0 $60,001 $70,000 0 $0 $0 75% $0 $70,001 $80, $70,909 $2,340,000 75% $1,755,000 $80,001 $90,000 0 $0 $0 75% $0 $90,001 $100, $98,182 $1,669,091 75% $1,251,818 $100,001 $110,000 0 $0 $0 75% $0 $110,001 $120,000 0 $0 $0 75% $0 $120,001 $130,000 0 $0 $0 75% $0 $130,001 $140,000 0 $0 $0 75% $0 $140,001 $150,000 0 $0 $0 75% $0 $150,001 Or More 0 $0 $0 75% $0 Total 50 $4,009,091 $3,006,818 (1) From Table A-17. (2) Weighted average for income range based on projections of average annual income in Table A-13. Source: DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 72

150 Table A-22 Estimated Total Household Income of New Homebuyers Prototype #4 Stacked Flats Condos Underground Parking City of East Palo Alto Residential Nexus Fee Analysis 2013 Income Range Number of Households (1) Average Income (2) Total Household Income % Disposable Income Total Disposable Household Income Under $60,000 0 $0 $0 75% $0 $60,001 $70,000 0 $0 $0 75% $0 $70,001 $80, $79,622 $1,592,440 75% $1,194,330 $80,001 $90, $87,119 $6,098,364 75% $4,573,773 $90,001 $100,000 0 $97,116 $0 75% $0 $100,001 $110,000 0 $107,113 $0 75% $0 $110,001 $120, $114,610 $1,146,104 75% $859,578 $120,001 $130,000 0 $0 $0 75% $0 $130,001 $140,000 0 $0 $0 75% $0 $140,001 Or More 0 $0 $0 75% $0 Total 100 $8,836,908 $6,627,681 (1) From Table A-18. (2) Weighted average for income range based on projections of average annual income in Table A-14. Source: DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 73

151 Table A-23 Summary of Projected Economic Impacts by Prototype City of East Palo Alto Residential Nexus Fee Analysis 2013 Prototype/Impact Type Direct Indirect Induced Total Prototype #1 Single-Family Infill Owner Employment (Number of Employees) Total Industry Output $3,254,219 $792,616 $644,583 $4,691,418 Payroll $1,265,536 $326,822 $254,359 $1,846,717 Average Payroll Per Employee $54,785 $65,364 $56,524 $56,648 Prototype #2 Owner Townhomes Owner Employment (Number of Employees) Total Industry Output $2,214,168 $539,295 $438,573 $3,192,036 Payroll $861,070 $222,370 $173,065 $1,256,505 Average Payroll Per Employee $54,845 $65,403 $55,828 $56,599 Prototype #3 Stacked Flat Apts. Podium Parking Renter Employment (Number of Employees) Total Industry Output $1,981,100 $484,801 $391,655 $2,857,555 Payroll $767,694 $199,940 $154,553 $1,122,187 Average Payroll Per Employee $54,835 $64,497 $57,242 $56,676 Prototype #4 Stacked Flats Condos Underground Parking Owner Employment (Number of Employees) Total Industry Output $4,415,836 $1,075,546 $874,671 $6,366,054 Payroll $1,717,279 $443,484 $345,154 $2,505,916 Average Payroll Per Employee $54,690 $65,218 $56,583 $56,567 Source: IMPLAN Input/Output Model; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 74

152 Table A-24 Projected Employment Impacts by Industry Sector Prototype #1 Single-Family Infill City of East Palo Alto Residential Nexus Fee Analysis 2013 Industry Sector Direct Employment Indirect Employment Induced Employment Total Employment (1) FTE Conversion Factor (2) Full-Time Employment (3) Manufacturing Wholesale Trade Retail Trade Transportation Warehousing and Storage Information and Communication Finance and Insurance Real Estate, Rentals and Leasing Professional, Scientific and Technical Management and Administrative Services Educational Services Health Care and Social Assistance Arts, Entertainment and Recreation Other Services Government Total (1) Includes total direct, indirect and induced employment, full-time and part-time. (2) Full-time equivalent (FTE) conversion ratios from the IMPLAN model. (3) Total number of employees mulitplied by FTE conversion factor. Source: IMPLAN Input/Output Model; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 75

153 Table A-25 Projected Employment Impacts by Industry Sector Prototype #2 Owner Townhomes City of East Palo Alto Residential Nexus Fee Analysis 2013 Industry Sector Direct Employment Indirect Employment Induced Employment Total Employment (1) FTE Conversion Factor (2) Full-Time Employment (3) Manufacturing Wholesale Trade Retail Trade Transportation Warehousing and Storage Information and Communication Finance and Insurance Real Estate, Rentals and Leasing Professional, Scientific and Technical Management and Administrative Services Educational Services Health Care and Social Assistance Arts, Entertainment and Recreation Other Services Government Total (1) Includes total direct, indirect and induced employment, full-time and part-time. (2) Full-time equivalent (FTE) conversion ratios from the IMPLAN model. (3) Total number of employees mulitplied by FTE conversion factor. Source: IMPLAN Input/Output Model; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 76

154 Table A-26 Projected Employment Impacts by Industry Sector Prototype #3 Stacked Flat Apts. Podium Parking City of East Palo Alto Residential Nexus Fee Analysis 2013 Industry Sector Direct Employment Indirect Employment Induced Employment Total Employment (1) FTE Conversion Factor (2) Full-Time Employment (3) Manufacturing Wholesale Trade Retail Trade Transportation Warehousing and Storage Information and Communication Finance and Insurance Real Estate, Rentals and Leasing Professional, Scientific and Technical Management and Administrative Services Educational Services Health Care and Social Assistance Arts, Entertainment and Recreation Other Services Government Total (1) Includes total direct, indirect and induced employment, full-time and part-time. (2) Full-time equivalent (FTE) conversion ratios from the IMPLAN model. (3) Total number of employees mulitplied by FTE conversion factor. Source: IMPLAN Input/Output Model; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 77

155 Table A-27 Projected Employment Impacts by Industry Sector Prototype #4 Stacked Flats Condos Underground Parking City of East Palo Alto Residential Nexus Fee Analysis 2013 Industry Sector Direct Employment Indirect Employment Induced Employment Total Employment (1) FTE Conversion Factor (2) Full-Time Employment (3) Manufacturing Wholesale Trade Retail Trade Transportation Warehousing and Storage Information and Communication Finance and Insurance Real Estate, Rentals and Leasing Professional, Scientific and Technical Management and Administrative Services Educational Services Health Care and Social Assistance Arts, Entertainment and Recreation Other Services Government Total (1) Includes total direct, indirect and induced employment, full-time and part-time. (2) Full-time equivalent (FTE) conversion ratios from the IMPLAN model. (3) Total number of employees mulitplied by FTE conversion factor. Source: IMPLAN Input/Output Model; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 78

156 Table A-28 Projected Labor Income by Industry Sector Prototype #1 Single-Family Infill City of East Palo Alto Residential Nexus Fee Analysis 2013 Industry Sector Direct Indirect Induced Total Labor Income Total Employees Average Income Per Employee Manufacturing $10,331 $26,054 $6,019 $42, $111,410 Wholesale Trade $56,214 $4,627 $8,294 $69, $103,735 Retail Trade $317,468 $5,715 $44,180 $367, $44,795 Transportation $20,755 $9,266 $5,161 $35, $63,093 Warehousing and Storage $22 $1,222 $179 $1, $23,678 Information and Communication $46,971 $29,520 $11,765 $88, $113,980 Finance and Insurance $105,146 $75,565 $27,410 $208, $124,292 Real Estate, Rentals and Leasing $15,363 $13,405 $5,360 $34, $17,147 Professional, Scientific and Technical $36,707 $68,068 $16,883 $121, $93,596 Management and Administrative Services $10,094 $50,781 $10,034 $70, $51,978 Educational Services $37,341 $617 $6,135 $44, $36,847 Health Care and Social Assistance $362,514 $5,416 $66,211 $434, $70,084 Arts, Entertainment and Recreation $29,055 $1,673 $5,255 $35, $35,185 Other Services $202,555 $25,427 $37,373 $265, $38,202 Government $15,000 $9,465 $4,098 $28, $98,477 Total $1,265,536 $326,822 $254,359 $1,846, $57,283 Source: IMPLAN Input/Output Model; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 79

157 Table A-29 Projected Labor Income by Industry Sector Prototype #2 Owner Townhomes City of East Palo Alto Residential Nexus Fee Analysis 2013 Industry Sector Direct Indirect Induced Total Labor Income Total Employees Average Income Per Employee Manufacturing $7,029 $17,727 $4,095 $28, $111,410 Wholesale Trade $38,248 $3,148 $5,643 $47, $103,735 Retail Trade $216,005 $3,889 $30,060 $249, $44,795 Transportation $14,122 $6,305 $3,512 $23, $63,093 Warehousing and Storage $15 $832 $122 $ $23,678 Information and Communication $31,959 $20,086 $8,005 $60, $113,980 Finance and Insurance $71,541 $51,414 $18,650 $141, $124,292 Real Estate, Rentals and Leasing $10,453 $9,121 $3,647 $23, $17,147 Professional, Scientific and Technical $24,975 $46,314 $11,487 $82, $93,596 Management and Administrative Services $6,868 $34,551 $6,827 $48, $51,978 Educational Services $25,407 $420 $4,174 $30, $36,847 Health Care and Social Assistance $246,654 $3,685 $45,050 $295, $70,084 Arts, Entertainment and Recreation $19,769 $1,138 $3,576 $24, $35,185 Other Services $137,818 $17,300 $25,428 $180, $38,202 Government $10,206 $6,440 $2,788 $19, $98,477 Total $861,070 $222,370 $173,065 $1,256, $56,615 Source: IMPLAN Input/Output Model; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 80

158 Table A-30 Projected Labor Income by Industry Sector Prototype #3 Stacked Flat Apts. Podium Parking City of East Palo Alto Residential Nexus Fee Analysis 2013 Industry Sector Direct Indirect Induced Total Labor Income Total Employees Average Income Per Employee Manufacturing $6,995 $15,622 $3,657 $26, $111,709 Wholesale Trade $37,480 $2,862 $5,039 $45, $103,735 Retail Trade $181,134 $3,285 $26,846 $211, $44,795 Transportation $12,273 $5,699 $3,136 $21, $61,268 Warehousing and Storage $15 $725 $109 $ $23,678 Information and Communication $31,223 $18,222 $7,148 $56, $113,839 Finance and Insurance $63,581 $44,798 $16,657 $125, $114,553 Real Estate, Rentals and Leasing $13,458 $8,075 $3,256 $24, $16,596 Professional, Scientific and Technical $20,297 $42,624 $10,258 $73, $92,768 Management and Administrative Services $5,891 $31,919 $6,096 $43, $52,661 Educational Services $15,543 $338 $3,728 $19, $35,946 Health Care and Social Assistance $231,853 $3,588 $40,230 $275, $72,380 Arts, Entertainment and Recreation $16,773 $1,041 $3,193 $21, $34,931 Other Services $121,579 $15,289 $22,708 $159, $38,242 Government $9,599 $5,853 $2,490 $17, $98,423 Total $767,694 $199,940 $154,553 $1,122, $56,719 Source: IMPLAN Input/Output Model; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 81

159 Table A-31 Projected Labor Income by Industry Sector Prototype #4 Stacked Flats Condos Underground Parking City of East Palo Alto Residential Nexus Fee Analysis 2013 Industry Sector Direct Indirect Induced Total Labor Income Total Employees Average Income Per Employee Manufacturing $14,019 $35,355 $8,168 $57, $111,410 Wholesale Trade $76,281 $6,278 $11,255 $93, $103,735 Retail Trade $430,791 $7,755 $59,951 $498, $44,795 Transportation $28,164 $12,574 $7,003 $47, $63,093 Warehousing and Storage $30 $1,659 $244 $1, $23,678 Information and Communication $63,737 $40,058 $15,965 $119, $113,980 Finance and Insurance $142,678 $102,539 $37,194 $282, $124,292 Real Estate, Rentals and Leasing $20,847 $18,190 $7,273 $46, $17,147 Professional, Scientific and Technical $49,810 $92,366 $22,910 $165, $93,596 Management and Administrative Services $13,697 $68,908 $13,615 $96, $51,978 Educational Services $50,671 $837 $8,325 $59, $36,847 Health Care and Social Assistance $491,916 $7,349 $89,846 $589, $70,084 Arts, Entertainment and Recreation $39,426 $2,270 $7,131 $48, $35,185 Other Services $274,859 $34,503 $50,713 $360, $38,202 Government $20,355 $12,844 $5,560 $38, $98,477 Total $1,717,279 $443,484 $345,154 $2,505, $56,615 Source: IMPLAN Input/Output Model; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 82

160 Table A-32 Wages by Occupational Grouping San Francisco-San Mateo-Redwood City MSA 1st Quarter 2012 SOC Code Prefix (1) Occupational Category 2010 Employment Estimates % of Total Employment Mean Hourly Wage Mean Annual Wage 25th Percentile Hourly Wage Median (50th Percentile) Hourly Wage 75th Percentile Hourly Wage 25th Percentile Annual Wage Median (50th Percentile) Annual Wage 75th Percentile Annual Wage Est. % of Jobs Below 50% AMI Est. % of Jobs Between 50%-80% AMI Est. % of Jobs Between 80%-120% AMI 11 Management 71,940 7% $69.07 $143,665 $42.32 $62.52 $88.09 $88,026 $130,042 $183,227 0% 0% 30% 13 Business and Financial Operations 15 Computer and Mathematical 17 Architecture and Engineering 19 Life, Physical and Social Science 21 Community and Social Services 81,290 8% $44.49 $92,532 $29.56 $39.45 $53.59 $61,485 $82,056 $111,467 5% 40% 30% 53,160 6% $48.37 $100,608 $37.44 $48.36 $59.42 $77,875 $100,589 $123,594 0% 25% 35% 16,240 2% $45.28 $94,176 $32.79 $43.07 $56.08 $68,203 $89,586 $116,646 0% 25% 45% 17,160 2% $43.08 $89,620 $29.19 $40.29 $53.93 $60,715 $83,803 $112,174 5% 25% 45% 14,010 1% $26.66 $55,464 $18.24 $23.52 $34.63 $37,939 $48,922 $72,030 45% 40% 5% 23 Legal 14,580 2% $69.44 $144,445 $38.24 $63.84 $90.00 $79,539 $132,787 $187,200 0% 0% 30% 25 Education, 47,250 5% $29.92 $62,252 $18.66 $26.72 $37.11 $38,813 $55,578 $77,189 40% 35% 10% Training, and Library 27 Arts, Design, Entertainment, Sports, Media 25,890 3% $34.77 $72,319 $20.90 $29.88 $42.56 $43,472 $62,150 $88,525 30% 35% 5% 29 Healthcare Practitioners and Technical 31 Healthcare Support 33 Protective Service 35 Food Preparation and Serving-Related 37 Building and Grounds Cleaning and Maintenance 44,150 5% $47.49 $98,782 $29.18 $43.79 $61.29 $60,694 $91,083 $127,483 5% 20% 30% 21,500 2% $17.92 $37,256 $12.84 $16.99 $22.54 $26,707 $35,339 $46,883 75% 20% 5% 22,450 2% $25.69 $53,432 $14.32 $22.23 $35.16 $29,786 $46,238 $73,133 50% 25% 15% 94,610 10% $12.84 $26,723 $9.82 $11.14 $14.18 $20,426 $23,171 $29,494 85% 10% 5% % $15.03 $31,265 $11.09 $14.09 $17.82 $23,067 $29,307 $37,066 80% 10% 10% City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 83

161 Table A-32 Wages by Occupational Grouping San Francisco-San Mateo-Redwood City MSA 1st Quarter 2012 SOC Code Prefix Occupational (1) Category 39 Personal Care and Service 40 Sales and Related 43 Office and Administrative Support 45 Farming, Fishing, Forestry 47 Construction and Extraction 49 Installation, Maintenance and Repair 2010 Employment Estimates % of Total Employment Mean Hourly Wage Mean Annual Wage 25th Percentile Hourly Wage Median (50th Percentile) Hourly Wage 75th Percentile Hourly Wage 25th Percentile Annual Wage Median (50th Percentile) Annual Wage 75th Percentile Annual Wage Est. % of Jobs Below 50% AMI Est. % of Jobs Between 50%-80% AMI Est. % of Jobs Between 80%-120% AMI 23,880 2% $16.45 $34,214 $10.72 $13.49 $19.68 $22,298 $28,059 $40,934 75% 15% 5% 97,070 10% $25.65 $53,361 $11.38 $16.56 $29.21 $23,670 $34,445 $60,757 60% 15% 15% 154,110 16% $21.98 $45,733 $15.62 $20.98 $26.95 $32,490 $43,638 $56,056 60% 20% 10% 470 0% $17.55 $36,514 $11.25 $13.46 $19.08 $23,400 $27,997 $39,686 80% 10% 10% 26,530 3% $29.80 $61,976 $21.20 $28.04 $36.65 $44,096 $58,323 $76,232 30% 35% 15% 24,350 3% $26.60 $55,320 $18.89 $26.34 $33.49 $39,291 $54,787 $69,659 30% 35% 15% 51 Production 27,050 3% $18.95 $39,430 $11.61 $16.43 $23.28 $24,149 $34,174 $48,422 70% 25% 5% 53 Transportation and Material Moving TOTAL 959, % 45,010 5% $20.06 $41,725 $12.43 $16.99 $24.99 $25,854 $35,339 $51,979 70% 25% 5% (1) The first two digits of the six digit Standard Occupational Classification (SOC) code. Source: California Employment Development Department, Occupational Employment Statistics Survey, First Quarter 2012; DRA City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 84

162 Table A-33 Estimated Qualifying Very Low, Low and Moderate Income Households Prototype #1 Single-Family Infill City of East Palo Alto Residential Nexus Fee Analysis 2013 Economic Sector Total New FTE Employees Generated by Development (1) No. of New Households (2) Average Payroll Per Employee (3) Estimated Household Income (4) Estimated Percent of HH Earning Incomes Below 50% AMI (5)(6) Estimated Percent of HH Earning Incomes Between 51% and 80% AMI (5)(6) Estimated Percent of HH Earning Incomes Between 81% and 120% AMI (5)(6) Estimated Households Earning Incomes Below 50% AMI Estimated Households Earning Incomes Between 51% and 80% AMI Estimated Households Earning Incomes Between 81% and 120% AMI Wholesale Trade $103,735 $186,723 70% 25% 5% Retail Trade $44,795 $80,631 60% 15% 15% Transportation $63,093 $113,567 70% 25% 5% Warehousing and Storage $23,678 $42,621 70% 25% 5% Information and Communication $113,980 $205,164 60% 20% 10% Finance and Insurance $124,292 $223,726 5% 40% 30% Real Estate, Rentals and Leasing $17,147 $30,864 5% 40% 30% Professional, Scientific and Technical $93,596 $168,473 5% 25% 45% Management and Administrative Services $51,978 $93,561 0% 0% 30% Educational Services $36,847 $66,325 40% 35% 10% Health Care and Social Assistance $70,084 $126,151 75% 20% 5% Arts, Entertainment and Recreation $35,185 $63,333 30% 35% 5% Other Services $38,202 $68,763 75% 15% 5% Government $98,477 $177,258 60% 20% 10% Total/Average $57,283 $103, (1) Includes full-time equivalent employees from direct, indirect and induced employment, from Table A-24. (2) Number of FTE conversion employees divided by 1.80 employees per worker household. (3) From IMPLAN input/output model. (4) Average payroll per employee multiplied by 1.80 employees per worker household. (5) Assumes three persons per household and income limits of $47,500 for very low income households, $76,000 for low income households, and $113,940 for moderate income households. (6) Percentage of employees by income category estimated based on IMPLAN average payroll figures, and CEDD wage survey from Table A-32. Source: IMPLAN; California Employment Development Department, Occupational Employment Statistics Survey, First Quarter 2012; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 85

163 Table A-34 Estimated Qualifying Very Low Income and Low Income Households Prototype #2 Owner Townhomes City of East Palo Alto Residential Nexus Fee Analysis 2013 Economic Sector Total New FTE Employees Generated by Development (1) No. of New Households (2) Average Payroll Per Employee (3) Estimated Household Income (4) Estimated Percent of HH Earning Incomes Below 50% AMI (5)(6) Estimated Percent of HH Earning Incomes Between 51% and 80% AMI (5)(6) Estimated Percent of HH Earning Incomes Between 81% and 120% AMI (5)(6) Estimated Households Earning Incomes Below 50% AMI Estimated Households Earning Incomes Between 51% and 80% AMI Estimated Households Earning Incomes Between 81% and 120% AMI Wholesale Trade $103,735 $186,723 70% 25% 5% Retail Trade $44,795 $80,631 60% 15% 15% Transportation $63,093 $113,567 70% 25% 5% Warehousing and Storage $23,678 $42,621 70% 25% 5% Information and Communication $113,980 $205,164 60% 20% 10% Finance and Insurance $124,292 $223,726 5% 40% 30% Real Estate, Rentals and Leasing $17,147 $30,864 5% 40% 30% Professional, Scientific and Technical $93,596 $168,473 5% 25% 45% Management and Administrative Services $51,978 $93,561 0% 0% 30% Educational Services $36,847 $66,325 40% 35% 10% Health Care and Social Assistance $70,084 $126,151 75% 20% 5% Arts, Entertainment and Recreation $35,185 $63,333 30% 35% 5% Other Services $38,202 $68,763 75% 15% 5% Government $98,477 $177,258 60% 20% 10% Total/Average $56,615 $101, (1) Includes full-time equivalent employees from direct, indirect and induced employment, from Table A-25. (2) Number of FTE conversion employees divided by 1.80 employees per worker household. (3) From IMPLAN input/output model. (4) Average payroll per employee multiplied by 1.80 employees per worker household. (5) Assumes three persons per household and income limits of $47,500 for very low income households, $76,000 for low income households, and $113,940 for moderate income households. (6) Percentage of employees by income category estimated based on IMPLAN average payroll figures, and CEDD wage survey from Table A-32. Source: IMPLAN; California Employment Development Department, Occupational Employment Statistics Survey, First Quarter 2012; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 86

164 Economic Sector Total New FTE Employees Generated by Development (1) Table A-35 Estimated Qualifying Very Low Income and Low Income Households Prototype #3 Stacked Flat Apts. Podium Parking City of East Palo Alto Residential Nexus Fee Analysis 2013 No. of New Households (2) Average Payroll Per Employee (3) Estimated Household Income (4) Estimated Percent of HH Earning Incomes Below 50% AMI (5)(6) Estimated Percent of HH Earning Incomes Between 51% and 80% AMI (5)(6) Estimated Percent of HH Earning Incomes Between 81% and 120% AMI (5)(6) Estimated Households Earning Incomes Below 50% AMI Estimated Households Earning Incomes Between 51% and 80% AMI Estimated Households Earning Incomes Between 81% and 120% AMI Wholesale Trade $103,735 $186,723 70% 25% 5% Retail Trade $44,795 $80,631 60% 15% 15% Transportation $61,268 $110,283 70% 25% 5% Warehousing and Storage $23,678 $42,621 70% 25% 5% Information and Communication $113,839 $204,911 60% 20% 10% Finance and Insurance $114,553 $206,195 5% 40% 30% Real Estate, Rentals and Leasing $16,596 $29,872 5% 40% 30% Professional, Scientific and Technical $92,768 $166,982 5% 25% 45% Management and Administrative Services $52,661 $94,790 0% 0% 30% Educational Services $35,946 $64,703 40% 35% 10% Health Care and Social Assistance $72,380 $130,285 75% 20% 5% Arts, Entertainment and Recreation $34,931 $62,875 30% 35% 5% Other Services $38,242 $68,835 75% 15% 5% Government $98,423 $177,162 60% 20% 10% Total/Average $56,719 $102, (1) Includes full-time equivalent employees from direct, indirect and induced employment, from Table A-26. (2) Number of FTE conversion employees divided by 1.80 employees per worker household. (3) From IMPLAN input/output model. (4) Average payroll per employee multiplied by 1.80 employees per worker household. (5) Assumes three persons per household and income limits of $47,500 for very low income households, $76,000 for low income households, and $113,940 for moderate income households. (6) Percentage of employees by income category estimated based on IMPLAN average payroll figures, and CEDD wage survey from Table A-32. Source: IMPLAN; California Employment Development Department, Occupational Employment Statistics Survey, First Quarter 2012; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 87

165 Economic Sector Total New FTE Employees Generated by Development (1) Table A-36 Estimated Qualifying Very Low Income and Low Income Households Prototype #4 Stacked Flats Condos Underground Parking City of East Palo Alto Residential Nexus Fee Analysis 2013 No. of New Households (2) Average Payroll Per Employee (3) Estimated Household Income (4) Estimated Percent of HH Earning Incomes Below 50% AMI (5)(6) Estimated Percent of HH Earning Incomes Between 51% and 80% AMI (5)(6) Estimated Percent of HH Earning Incomes Between 81% and 120% AMI Estimated Households Earning Incomes Below 50% AMI Estimated Households Earning Incomes Between 51% and 80% AMI Estimated Households Earning Incomes Between 81% and 120% AMI Wholesale Trade $103,735 $186,723 70% 25% 5% Retail Trade $44,795 $80,631 60% 15% 15% Transportation $63,093 $113,567 70% 25% 5% Warehousing and Storage $23,678 $42,621 70% 25% 5% Information and Communication $113,980 $205,164 60% 20% 10% Finance and Insurance $124,292 $223,726 5% 40% 30% Real Estate, Rentals and Leasing $17,147 $30,864 5% 40% 30% Professional, Scientific and Technical $93,596 $168,473 5% 25% 45% Management and Administrative Services $51,978 $93,561 0% 0% 30% Educational Services $36,847 $66,325 40% 35% 10% Health Care and Social Assistance $70,084 $126,151 75% 20% 5% Arts, Entertainment and Recreation $35,185 $63,333 30% 35% 5% Other Services $38,202 $68,763 75% 15% 5% Government $98,477 $177,258 60% 20% 10% Total/Average $56,615 $101, (1) Includes full-time equivalent employees from direct, indirect and induced employment, from Table A-27. (2) Number of FTE conversion employees divided by 1.80 employees per worker household. (3) From IMPLAN input/output model. (4) Average payroll per employee multiplied by 1.80 employees per worker household. (5) Assumes three persons per household and income limits of $47,500 for very low income households, $76,000 for low income households, and $113,940 for moderate income households. (6) Percentage of employees by income category estimated based on IMPLAN average payroll figures, and CEDD wage survey from Table A-32. Source: IMPLAN; California Employment Development Department, Occupational Employment Statistics Survey, First Quarter 2012; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 88

166 Table A-37 Estimated Maximum Residential Nexus Fee Per Unit and Per Net Square Foot New Renter and Owner Housing Prototype Units City of East Palo Alto Residential Nexus Fee Analysis 2013 Very Low Income Low Income Moderate Income Total Prototype #1 Est. No. of New Employee Households Moving to East Palo Alto Gap Per Household (1) $244,400 $146,700 $0 Total Gap $1,955,200 $440,100 $0 No. of Units in Prototype Gap Per Unit in Prototype = Supportable Nexus Fee (2) $39,104 $8,802 $0 $47,906 Average Square Feet Per Unit in Prototype 2,000 2,000 2,000 Gap Per Net Square Foot (3) $19.55 $4.40 $0.00 $23.95 Prototype #2 Est. No. of New Employee Households Moving to East Palo Alto Gap Per Household (1) $174,520 $85,920 $0 Total Gap $1,047,120 $171,840 $0 No. of Units in Prototype Gap Per Unit in Prototype = Supportable Nexus Fee (2) $20,942 $3,437 $0 $24,379 Average Square Feet Per Unit in Prototype 1,060 1,060 1,060 Gap Per Net Square Foot (3) $19.76 $3.24 $0.00 $23.00 Prototype #3 Est. No. of New Employee Households Moving to East Palo Alto Gap Per Household (1) $157,142 $89,429 $21,769 Total Gap $785,708 $178,859 $21,769 No. of Units in Prototype Gap Per Unit in Prototype = Supportable Nexus Fee (2) $15,714 $3,577 $435 $19,727 Average Square Feet Per Unit in Prototype Gap Per Net Square Foot (3) $18.08 $4.12 $0.50 $22.70 Prototype #4 Est. No. of New Employee Households Moving to East Palo Alto Gap Per Household (1) $277,000 $205,420 $62,660 Total Gap $3,047,000 $821,680 $187,980 No. of Units in Prototype Gap Per Unit in Prototype = Supportable Nexus Fee (2) $30,470 $8,217 $1,880 $40,567 Average Square Feet Per Unit in Prototype Gap Per Net Square Foot (3) $33.59 $9.06 $2.07 $44.73 (1) Weighted average per unit gap based on distribution of units by bedroom count for each housing prototype, from Tables A-7 through A-10. (2) Total gap divided by the number of units in each prototype. (3) Equals gap per unit divided by average square feet per unit for each prototype. Source: DRA City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 89

167 Table A-38 Land Residual Analysis Assumptions City of East Palo Alto Residential Nexus Fee Analysis Economic Impact Analysis 2013 Unit of COST/INCOME BY LAND USE Measure Prototype #1 Prototype #2 Prototype #3 Prototype #4 Owner Owner Rental Owner Single-Family Infill Owner Townhomes Stacked Flat Apts. Stacked Flats Condos Podium Parking Underground Parking Total Development Cost (1) Gross SF $ $ $ $ Gross Income/Sales Proceeds (2) Net SF Living Area $ $ $30.45 $ Operating Expenses % of Gr. Inc. N/A N/A 16.0% N/A Occupancy Rate % N/A N/A 95.0% N/A Capitalization Rate (3) N/A N/A 5.6% N/A Net Living Area (Square Feet) 100,000 53,000 43,450 90,700 No. of Residential Units (1) Equals total development cost, excluding land, for each prototype from Appendix Tables A-6 through A-9. (2) Equals sales price per square foot for owner prototypes and annual rent per square foot for renter prototype. (3) Source: Cassidy Turley Commercial Real Estate Services," San Francisco Bay Area Apartment Market Report", First Quarter Sources: Cassidy Turley Commercial Real Estate Services; Dataquick; RealFacts; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 90

168 Table A-39 Land Residual Analysis Construction Cost and Net Operating Income Calculations (1) City of East Palo Alto Residential Nexus Fee Analysis Economic Impact Analysis 2013 Prototype #1 Prototype #2 Prototype #3 Prototype #4 Owner Owner Rental Owner Single-Family Infill Owner Townhomes Stacked Flat Apts. Stacked Flats Condos Podium Parking Underground Parking GROSS BUILDING SQUARE FEET 100,000 53,000 43,450 90,700 TOTAL HOUSING UNITS DEVELOPMENT COSTS (000's) Total Development Costs (Excluding Land) $15,500 $10,918 $16,381 $37,822 TOTAL DEVELOPMENT COSTS (000's) $15,500 $10,918 $16,381 $37,822 TOTAL COSTS PER HOUSING UNIT $310,000 $218,360 $327,613 $378,219 TOTAL COSTS/SF $ $ $ $ NET (OPERATING OR SALES) INCOME (000's) Net Rentable/Saleable Building SF 100,000 53,000 43,450 90,700 Gross Income By Use $30,000 $17,861 $1,323 $35,645 Less: Sales Costs (2) $0 $0 $0 $0 Less: Operating Expense $0 $0 ($212) $0 NET (OPERATING OR SALES) INCOME $30,000 $17,861 $1,111 $35,645 NET (OPERATING OR SALES) INCOME /SF $ $ $23.02 $ (1) See Table A-38 for assumptions. (2) Included in total development cost budgets. Source: DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 91

169 Table A-40 Land Residual Analysis City of East Palo Alto Residential Nexus Fee Analysis Economic Impact Analysis 2013 Prototype #1 Prototype #2 Prototype #3 Prototype #4 Owner Owner Rental Owner Single-Family Infill Owner Townhomes Stacked Flat Apts. Stacked Flats Condos Podium Parking Underground Parking Number of Housing Units Gross SF Bldg Area 100,000 53,000 43,450 90,700 Net SF Site Area 200, , , ,000 Floor Area Ratio Ann. Net Operating/Sales Income (000's) (1) $30,000 $17,861 $1,111 $35,645 Assumed Capitalization Rate: (2) N/A N/A 5.60% N/A Capitalized Value/Sales Value (000's) (3) $30,000 $17,861 $19,845 $35,645 Total Develop. Costs Except Land (000's) (1) With Nexus Fee Per Housing Unit of: $0 No Fee $15,500 $10,918 $16,381 $37,822 $10,000 $16,000 $11,418 $17,381 $38,822 $20,000 $16,500 $11,918 $18,381 $39,822 $25,000 $16,750 $12,168 $18,881 $40,322 $30,000 $17,000 $12,418 $19,381 $40,822 $35,000 $17,250 $12,668 $19,881 $41,322 $40,000 $17,500 $12,918 $20,381 $41,822 $50,000 $18,000 $13,418 $21,381 $42,822 Resiual Land Value (000's) With Nexus Fee Per Housing Unit of: $0 No Fee $14,500 $6,943 $3,464 -$2,177 $10,000 $14,000 $6,443 $2,464 -$3,177 $20,000 $13,500 $5,943 $1,464 -$4,177 $25,000 $13,250 $5,693 $964 -$4,677 $30,000 $13,000 $5,443 $464 -$5,177 $35,000 $12,750 $5,193 -$36 -$5,677 $40,000 $12,500 $4,943 -$536 -$6,177 $50,000 $12,000 $4,443 -$1,536 -$7,177 Residual Land Value Per SF Site Area With Nexus Fee Per Housing Unit of: $0 No Fee $72.50 $65.50 $4.77 -$3.00 $10,000 $70.00 $60.78 $3.39 -$4.38 $20,000 $67.50 $56.07 $2.02 -$5.75 $25,000 $66.25 $53.71 $1.33 -$6.44 $30,000 $65.00 $51.35 $0.64 -$7.13 $35,000 $63.75 $ $0.05 -$7.82 $40,000 $62.50 $ $0.74 -$8.51 $50,000 $60.00 $ $2.12 -$9.89 Percent Reduction in Residual Land Value With Nexus Fee Per Housing Unit of: $10, % 7.2% 28.9% -45.9% $20, % 14.4% 57.7% -91.9% $25, % 18.0% 72.2% % $30, % 21.6% 86.6% % $35, % 25.2% 101.0% % $40, % 28.8% 115.5% % $50, % 36.0% 144.3% % (1) See Tables A-38 and A-39 for assumptions and calculations of net operating income and total development costs. (2) Source: Cassidy Turley Commercial Real Estate Services," San Francisco Bay Area Apartment Market Report", First Quarter (3) For renter housing, equals net operating income divided by capitalization rate for apartment land use. For owner housing, equals equals total sales prices for units in prototype. Source: DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 92

170 Table A-41 Vacant Residential Land Sales City of East Palo Alto January 1, May 1, 2013 Total Sales Lot Size Price Per No. Zip Code Address Parcel No. Sale Date Zoning Price (Sq. Ft.) Sq. Ft Addison Ave /19/12 R10006 $130,000 5,000 $ Weeks St /30/08 R10025 $1,600,000 32,583 $ Garden St /11/10 R10025 $750,000 43,560 $ Green St /3/08 R10025 $1,580,000 43,560 $ N/A /10/11 R30052 $2,000,000 6,882 $ Donohoe St /4/10 RM $516,455 5,227 $ Donohoe St /4/10 RM $516,455 7,841 $65.87 Bottom of Range $17.22 Top of Range $ Average $83.41 Median $49.11 Source: Dataquick Information Systems; DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 93

171 DEVELOPMENT COST ANALYSIS Table A-42 Development Cost and Rent Analysis City of East Palo Alto Residential Nexus Fee Analysis Economic Impact Analysis 2013 Prototype #3 Stacked Flat Apts. Podium Parking Development Cost Per Unit, Excluding Land $327,613 Plus: Land Cost Per Unit (1) $22,000 Total Development Cost Per Unit $349,613 Linkage Fee As % of Development Cost At a Fee Per Housing Unit of: $10, % $20, % $25, % $30, % $35, % $40, % $50, % RENT ANALYSIS Annual Gross Rent Per Sq. Ft. $30.45 Average Occupancy Rate 95% Increase in Annual Rent Per SF Required to Finance At a Fee Per Housing Unit of: $10,000 $0.91 $20,000 $1.81 $25,000 $2.27 $30,000 $2.72 $35,000 $3.17 $40,000 $3.63 $50,000 $4.53 % Increase in Annual Rent Per SF At a Fee Per Housing Unit of: $10, % $20, % $25, % $30, % $35, % $40, % $50, % (1) From Table A-8. (2) Financing assumptions: Debt: Loan to Value Ratio 60.00% Debt Interest Rate 6.00% Equity % of Develop. Costs 40.00% Equity Yield 12.00% Current Average Financing Cost 8.40% Assumed Average Financing Cost 8.40% Source: DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 94

172 Table A-43 Rate of Return Analysis City of East Palo Alto Residential Nexus Fee Analysis Economic Impact Analysis 2013 Prototype #3 Stacked Flat Apts. Podium Parking RETURN ANALYSIS Original Equity Investment Per Housing Unit (1) $139,845 Increase in Equity Investment Per Housing Unit At a Fee Per Housing Unit of: $10,000 $4,000 $20,000 $8,000 $25,000 $10,000 $30,000 $12,000 $35,000 $14,000 $40,000 $16,000 $50,000 $20,000 Assumed Equity Yield: 12.00% Original Return on Equity Per Housing Unit (3) $16,781 Revised Rate of Return on Equity at Development Impact Fee Per Square Foot of: (4) $10, % $20, % $25, % $30, % $35, % $40, % $50, % (1) Equals assumed equity yield multiplied by total development cost per square foot (without fee). (2) Assumes development impact fee is financed 100% through equity, since imposition of fee does not increase debt-carrying capacity of development. (3) Equals original return on equity per square foot multiplied by assumed equity yield. (4) Equals original return on equity per square foot divided by the sum of original equity investment per square foot plus increase in equity investment per square foot. Source: DRA. City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 95

173 Appendix B San Mateo County Housing Authority Utility Allowance Schedule 2013 City of East Palo Alto Affordable Housing Nexus Study Final Report July 10, 2014 Page 96

174 Allowances for Tenant- Furnished Utilities and Other Services U.S. Department of Housing and Urban Development 4 4 Housing Authority of the County of San Mateo Apartment/Condo/Duplex 11/01/ Actual Family Allowances Total HUD City of East Palo Alto Affordable Housing Nexus Study May 23, 2013 Administrative Review Draft Report Page 81

175 Allowances for Tenant- Furnished Utilities and Other Services U.S. Department of Housing OMB Approval No (exp. 4/30/2014) and Urban Development Office of Public and Indian Housing See Public Reporting Statement and Instructions on back Locality Unit Type Date (mm/dd/yyyy) Utility or Service Heating Cooking Other Electric a. Natural Gas b. Bottle Gas c. Oil / Electric d. Coal / Other a. Natural Gas b. Bottle Gas c. Oil / Electric d. Coal / Other Monthly Dollar Allowances 0 BR 1 BR 2 BR 3 BR 4 BR 5 BR Air Conditioning Water Heating a. Natural Gas Water Sewer Trash Collection Range/Microwave Refrigerator Other -- specify b. Bottle Gas c. Oil / Electric d. Coal / Other Actual Family Allowances To be used by the family to compute allowance. Utility or Service per month cost Complete below for the actual unit rented. Heating $ Name of Family Cooking Other Electric Air Conditioning Address of Unit Water Heating Water Sewer Trash Collection Range/Microwave Refrigerator Number of Bedrooms Other Total $ City of East Palo Alto Affordable Housing Nexus Study Page 1 of 1 Previous editions Administrative are obsolete Review Draft Report May form 23, HUD (12/97) Page ref. Handbook

176 CITY OF EAST PALO ALTO OFFICE OF THE CITY MANAGER 2415 UNIVERSITY AVENUE EAST PALO ALTO, CA Policy and Action Item: # 9A City Council Agenda Report Date: July 15, 2014 To: Via: From: Subject: Honorable Mayor and Members of the City Council Magda A. González, City Manager Miriam Torres, Truancy Prevention Pilot Program Coordinator Update on Measure C, Strategy #1 Improving Educational Outcomes for Middle/High School Youth and Providing Development Services Pilot Program Recommendation Accept the FY13-14 evaluation report on the Measure C Truancy Prevention Pilot Program: Adopt a resolution: 1) authorizing an extension of the pilot program through FY14-15; and 2) directing staff to submit a follow-up report on the Pilot Program for Council approval no later than July Alignment with City Council Strategic Plan This recommendation is primarily aligned with: Priority #3: Increase Organizational Effectiveness and Efficiency Priority #5: Improve Communication and Enhance Community Engagement Priority #6: Create a Healthy and Safe Community Background In November 2006, the voters of East Palo Alto approved the Crime Fighting Act of 2007, commonly referred to as Measure C. This act authorized a ten-year parcel tax to fund crime and violence prevention programs. The program is now in its seventh year. The tax generates approximately $700,000 a year, of which 50% is allocated to the Police Department and the remainder is allocated to fund programs designed to reduce violence, with an emphasis on youth and families..

177 A Violence Prevention Strategic Work Plan was adopted by the East Palo Alto City Council in October This plan identified three primary violence prevention strategies: 1. Improving Educational Outcomes for Middle/High School Youth and Youth Development Services; 2. Providing Support Services for Families of High/At-Risk Youth; and 3. Fostering Reentry into Reunification with the Community. Each strategy was allocated $163,333 for a total of $490,000. In adopting the work plan, the City Council recognized that additional deliberations would be needed with the local school districts in order to advance Strategy #1. Following discussions with both the Ravenswood City School District (RCSD) and Sequoia Union High School District (SUHSD), the City Council on November 20, 2012, adopted a two-phased approach. In Phase #1, the scope and a proposed budget for a Pilot Program were to be developed and presented to the City Council for adoption at a future date. In addition, initial data relative to student population, available resources, and possible services was to be identified. In Phase #2, the City and School Districts were to seek opportunities to leverage the City s investment through additional community partnerships. The purpose of this report is to provide an overview of the Pilot Program s progress for FY Analysis Following the adoption of the Violence Prevention Strategic Work Plan, the City, RCSD, and SUHSD held several meetings and identified the issue of truancy prevention as a critical issue affecting educational outcomes for East Palo Alto youth. Studies indicate that students who miss school are more likely to struggle academically, drop out of school and engage in negative behaviors. Lacking an education, students are more likely to end up unemployed and at risk of becoming involved in crime, both as victims and as offenders. The RCSD reported that the cost associated with truancy during the school year was over $1.3 million dollars. Moreover, many truant students were also subject to school suspensions, thereby increasing the likelihood that they would engage in non-productive behavior. The City hired the Truancy Prevention Pilot Program Coordinator to lead and coordinate the Pilot Program in May Based on discussions with the school districts, the milestones for Phase #1 were identified as follows: 1. Established Oversight Committee to guide, evaluate and make adjustments to Pilot Program. The Oversight Committee consists of the City Manager, two City Council Members, RCSD Superintendent, RCSD Board Chair, SUHSD Superintendent, and SUHSD Board Chair. 2. Defined the student target population. 3. Initiated collection of relevant data. 4. Conducted individualized outreach to identify root causes of truancy problems. 5. Referred students to enroll in Carlmont and Woodside High Schools Compass programs a 19-day transition-to-success program for incoming ninth-grade students. The main emphasis is to increase academic skills in reading, study skills, and

178 mathematics, along with participating in physical education, leadership activities and high school success strategies. Students will receive up to five elective credits toward high school graduation. 6. Identified and collected information on resources available to support student success. 7. Provided a one-year status report to the City Council. With the partnership of the City, RCSD, and SUHSD these milestones were identified and met. Establishing central program elements has set the foundation of the Pilot Program. Along with these milestones the Pilot Program was successful in its first year with the accomplishments it reached. Accomplishments The following provides a short summary of this year s accomplishments. 1. The enrollment of East Palo Alto students in the Compass program at Carlmont increased from 29 to 49 and at Woodside from 42 to 66. City staff assisted with outreach efforts by making personalized phone calls, home visits, providing assistance to parents in completing enrollment forms, and collecting applications directly at middle school sites. 2. The initial student target population for the Pilot Program was defined to be students residing in East Palo Alto in grades 6-10, who attended either RCSD or SUHSD, and had 20 or more absences during the school year. This resulted in a target population of approximately 129 students. From the 129 students, 34 students enrolled in the Pilot Program. At a later date, another outreach effort was made using different target strategies, and an additional 38 students were enrolled in the Pilot Program. 3. Contact information for each of these students was provided to the City by both school districts. 4. Every family within the target population was either contacted by phone or mail. 5. Seventy (70) appointments were made with parents and 42 meetings with students. 6. Information on community resources was compiled from over 150 organizations. 7. Staff worked with the San Mateo County Behavioral Health and Recovery Services to offer Spanish Parent Project Classes in East Palo Alto. The direction and guidance of the Oversight Committee set objectives and provided the necessary support that allowed the Pilot Program to attain these accomplishments. Challenges While the Phase One milestones have been met, there were important lessons learned from the Pilot Program that are worth noting, including: 1. The issue of truancy is complex and requires a multi-agency intervention beyond just the City, RCSD, and SUHSD. Many of the root causes of truancy are due to social and/or economic problems affecting the entire family/home environment. Consequently, more intensive case management services that are outside the scope of the Pilot Program are needed in order to address these causes.

179 2. The City has multiple roles it can play with respect to truancy abatement: a. Liaison between schools and community resources to facilitate dialog/training on the issue; b. A central point for information and referral; c. A funding source for grants to non-profit agencies providing case management, youth intervention and family support services; and d. Enforcement. 3. There is a need to more clearly define the Pilot Program s goals, objectives, activities and measures of performance. Not having a logic model in place and approved by all three entities (the City, RCSD and SUHSD) has been challenging. 4. The original scope of the Pilot Program, which involved twelve different school sites, was too broad. As such, staff struggled to develop the depth and breadth of relationships to maintain meaningful relationships with school sites and students. 5. Statistics show that the problem of truancy starts in elementary school and parent education can help build a supportive environment for student success. 6. Students who are truant also experience suspensions, thereby exacerbating the problem. Of the 72 students enrolled in the Pilot Program, 28 have been suspended this school year. 7. There is a need to strengthen consequences for truant behavior. The voluntary nature of the Pilot Program and the lack of incentives and personnel to follow-up with students individually made it difficult to measure accountability. 8. The Oversight Committee could have benefited from having staff that is working more closely with students and families dealing with issues of truancy, rather than only administrators. Operational staff from the two school districts and City will be in a position to better direct the Pilot Program. While progress on the Measure C Truancy Prevention Pilot Program is being made, the issue is complex and requires additional refining of the Pilot Program in order to optimize performance. At this moment the Pilot Program is still in Phase One and has experienced similar shortcomings as other truancy programs during their early stages, as it takes more than a year to become fully operational. With this in mind, staff is recommending that discussions continue with the school districts and a refined logic model be developed. Given the upcoming summer break, it will be necessary to wait until the fall to make substantive changes. In the interim, staff is recommending that progress continue on developing community partnerships, compilation of community resources and efforts to increase enrollment in the Compass summer enrichment program. Going Forward Based on the lessons learned during Phase #1 and the progress made, staff would make the following recommendations: 1. Extend the pilot program for one additional year and direct staff to return by July 2015 to the Oversight Committee and City Council; 2. Continue to support the High School District s effort to increase enrollment in the Compass program during the summer of FY14-15; 3. Reach out to the Community Information Program to promote awareness about pivotal agencies that serve the East Palo Alto youth and/or their families; and

180 4. Restructure the composition of the Oversight Committee. Given that the current Oversight Committee members are not directly working with students and their families, in consultation with Superintendents Hernandez and Lianides, staff is recommending that the Oversight Committee consist of the SUHSD Administrator/Registration and Special Projects, RCSD Director of Student Service/Auxiliary Programs and the City s Community Programs Manager. Fiscal Impact Funds are available and allocated in the amount of $163,333 in Measure C Strategy #1 for the continuation of the Pilot Program. There is no fiscal impact to the General Fund. Attachments A. Budget

181 RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO TO APPROVE THE EXTENSION AND FUNDING OF THE TRUANCY PREVENTION PILOT PROGRAM TO REDUCE SCHOOL TRUANCY WHEREAS, in November 2006, the voters of East Palo Alto approved the Crime Fighting Act of 2007, a parcel tax created to fund crime and violence prevention programs; and WHEREAS, in October 2012, the City Council approved Measure C Strategy #1 Improving Educational Outcomes for Middle/High School Youth and Providing Youth Development Services. The City is collaborating with Ravenswood City School District (RCSD) and Sequoia Union High School District (SUHSD) on Strategy #1; and WHEREAS, the City s Truancy Prevention Pilot Program Coordinator has developed, coordinated and managed the activities of the Truancy Prevention Pilot Program in cooperation with the RCSD and SUHSD: NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO THAT the City Council hereby approves the extension of the Truancy Prevention Pilot Program for school year ; and BE IT FURTHER RESOLVED THAT Staff is directed to submit a follow-up report on the Pilot Program for Council approval no later than July PASSED AND ADOPTED this 15 th day of July 2014, by the following vote: AYES: NAES: ABSENT: ABSTAIN: SIGNED: Laura Martinez, Mayor ATTEST: APPROVED AS TO FORM: Nora Pimentel, Deputy City Clerk John A. Nagel, City Attorney

182 Measure C Strategy #1 Improving Educational Outcomes for Middle/High School Youth and Providing Development Services Truancy Prevention Pilot Program FY Expenditure Plan Categories Amount Personnel $64,100 Training/Educating 5,000 Support for Parent Training 3,500 Appropriate for Potential/Future Case Management 50,000 Software/Supplies 10,000 Data Collection and Analysis 30,000 Total $162,600

183 CITY OF EAST PALO ALTO OFFICE OF THE CITY MANAGER 2415 UNIVERSITY AVENUE EAST PALO ALTO, CA Policy and Action Item: #9B City Council Agenda Report Date: July 15, 2014 To: Via: From: Subject: Honorable Mayor and Members of the City Council Magda A. González, City Manager John Doughty, Community and Economic Development Director Development Impact Fee Program Recommendation Receive the Nexus Study and Development Impact Fee Program (the Program) report, and direct staff to: 1) hold a community meeting to receive community input regarding the Program; and, 2) return to the City Council in the fall of 2014 with a draft Ordinance and Fee Resolution for City Council consideration. Alignment with City Council Strategic Plan This recommendation is primarily aligned with: Priority #1: Enhance Public Safety and Emergency Preparedness Priority #2: Enhance Economic Vitality Priority #3: Increase Organizational Effectiveness and Efficiency Priority #4: Improve Public Facilities and Infrastructure Priority #5: Improve Communication and Enhance Community Engagement Priority #6: Create a Healthy and Safe Community Background In September 2012, the City Council adopted the Ravenswood/4 Corners Transit Oriented Development Specific Plan (the Specific Plan). The Specific Plan projects significant growth in housing, employment, and commercial space. This new growth will require significant new or upgraded infrastructure, including water supply, drainage, roads, parks, libraries, and community centers. To finance these improvements, the City Council adopted a policy directive (Policy UTIL-3.5) in the Specific Plan, requiring that the City prepare a nexus study to identify a financing source for infrastructure improvements. This nexus study fulfills that policy directive.

184 Currently, the City of East Palo Alto does not have a standard, legislated impact fee structure. Instead, impact fees have been traditionally project-specific, and negotiated on a case-by-case basis, an approach that is vulnerable to legal challenge and difficult to administer. Analysis The City has substantial infrastructure improvement needs city wide and more specifically in the Ravenswood area. The City also has limited sources of funding, especially after the loss of Redevelopment. As such, the City must look at means beyond the General Fund and grants to fund infrastructure needs. The City sought and received a grant from the Association of Bay Area Governments (ABAG) to evaluate imposition of development impact fees in the City. The California Mitigation Fee Act (Assembly Bill [AB] 1600 or the Act) establishes the principles governing impact fee exactions and codifies the existing constitutional requirements. City governments can charge development impact fees to developers, as a condition of development approval, to finance infrastructure that the development requires. This Development Impact Fee Program and Nexus study provides the quantified basis for the imposition of fees. The goal of the fee study is two-fold. First, the fee study provides the City with the legal support to impose the fee. It demonstrates the required nexus between the impact created by new development and the fee amount. Second, the fee study quantifies the projected burden that new development will create on the City s infrastructure. Impact fees are commonly used to help fund new infrastructure, supplementing limited City funds. The City of East Palo Alto adopted the Specific Plan, where most of the future development in East Palo Alto will occur. To support the envisioned growth, the City commissioned an Engineer Report that identified the existing infrastructure capacity of the area and the infrastructure improvements needed to support the land uses envisioned. This impact fee study is largely based on the Wilsey Ham Engineer Report, the Specific Plan and Program Environmental Impact Report, and on the City s Capital Improvement Program, which in combination, identify city wide infrastructure needs, increased facilities capacity, and new facilities, including the estimated costs required to support the City s projected growth. This nexus study followed all AB 1600 statutory requirements. This Study calculated the maximum supportable fee burden that could be charged. However, the City does not have to charge the maximum fee. Any waived or reduced fee cannot be funded with fee revenues, such cross-subsidy is not allowed, because fee payers should not be paying for the impact generated by someone else. The funding shortfall needs to be covered with other revenues, such as the City s General Fund. The detailed development impact fees, as calculated by the nexus analysis are included in the Executive Summary of attachment 1, p.10.

185 A summary of the recommended Development Impact Fees per development type is below: Multi- Research & Development Impact Fees Town House Office Industrial Retail Family Development Charged to Development Per Dwelling Unit Per Square Foot Outside the Ravenswood Business District (RBD) $1,513 $1,206 $1.56 $1.97 $1.77 $1.28 Within the RBD $20,284 $17,270 $23.73 $23.06 $20.70 $9.11 Given that some of the infrastructure will have city wide benefits and other infrastructure will benefit specifically the development of the RBD, impact fees were developed for two zones, the entire City and the Ravenswood Business District. Impact fees citywide include, Park and Trails, Community Facilities and Water Infrastructure. For costs details, see attachment 1, Tables 10-12, pp Impact fees for the RBD only, include infrastructure such as Water (water distribution and storage), storm drainage, roadway and streetscape. For details regarding how these costs are attributed, see attachment 1, Tables 13-17, pp The process to adopt a Development Impact Fee Program (the Program) is complex and will require time. The Program needs to be adopted by ordinance. The ordinance establishing the fee program provides the legal basis for the imposition of the fee and all required procedures. The Ordinance is crafted so that fees can be adopted by resolution, which eliminates the need to amend the Ordinance to increase fees based on the consumer price or construction cost index. Staff is presenting this draft Nexus Study and Development Impact Fee Program as a draft only. Therefore, the numbers presented, even though based on technical analysis, should be considered preliminary. Staff plans to present this study to the community, property owners and other stakeholders to receive comments and feedback, report back to the City Council, amend the report as may be appropriate, and return to Council with recommendations for possible adoption of an Ordinance and resolution to adopt an impact fee program in the Fall of Fiscal Impact Development Impact fees are a way to pay for infrastructure improvements needed to support the City s growth. However, these fees are not collected until development happens. Therefore, the amount of impact fees collected will depend on the pace of new development, which is difficult to predict. As a result, capital improvements cannot commence until enough funds are collected. Development impact fees for the construction of public improvements or facilities are typically collected at the date of final inspection or upon issuance of a certificate of occupancy, whichever is earlier. Attachments 1. Development Impact Fee Program Nexus Study (On file in the Office of the City Clerk)

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187 City of East Palo Alto Development Impact Fee Program NEXUS STUDY Prepared for City of East Palo Alto Prepared by AECOM Sustainable Economics Group 20 December

188 MISSION STATEMENT The City of East Palo Alto provides responsive, respectful, and efficient services to enhance the quality of life and safety of its multi-cultural community. Laura Martinez, Mayor Lisa Yarbrough-Gauthier, Vice-Mayor Larry Moody, Councilmember Ruben Abrica, Councilmember Donna Rutherford, Councilmember Funding Provided By: Focus Program, ABAG, BAAQMD, MTC, BCDC 2

189 TABLE OF CONTENTS Executive Summary Introduction Purpose Nexus Fee Background Development Forecast Demographic Projections Development Projections Projected Infrastructure Requirements Ten-Year Capital Improvement Program (CIP) [Adopted 2013] Ravenswood Business District/4 Corners Specific Plan (RSP) Draft Engineering Plan Ravenswood District (DEPLAN) Impact Fee Summary Infrastructure Categories Impact Fee Zones Citywide Impact Fees RBD-Specific Impact Fees Impact Fees by Real Estate Product Types Summary of Maximum Supportable Nexus Fees Other Existing or Potential City Impact Fees Quimby Act Fees Affordable Housing Fees East Palo Alto Sanitary Sewer District (EPASD) Discussion Summary of Quimby, Affordable Housing, and Sanitary Sewer Estimated Fees Detailed Impact Fee Calculations Parks and Trails Purpose Nexus Methodology Community Facilities Purpose

190 Nexus Methodology Water Infrastructure Purpose Nexus Methodology Storm Drainage Purpose Nexus Methodology Roadway Infrastructure Purpose Nexus Methodology Streetscape Infrastructure Purpose Nexus Methodology Additional Funding Sources and City Contributions Required City Contribution Committed City Funds Estimated Other Funds Administration and Implementation Annual Escalation/Periodic Updates Specialized Development Projects Ongoing Administration Fee Credits or Reimbursements Impact Fee Deferral or Waiver

191 LIST OF TABLES AND FIGURES Summary of Recommended Development Impact Fees in East Palo Alto Figure 1: Boundaries of East Palo Alto and the RBD Figure 2: Boundary Details of RBD Table 1: Population, Employment, and Service Population ( ) Table 2: Development Projections for 25-Year and Year Planning Horizons Table 3: Infrastructure Project Costs List Table 4: Capital Improvement Project List for Impact Fee Consideration Table 5: Ravenswood Business District/4 Corners Specific Plan Project List for Impact Fee Consideration Table 6: Draft Engineering Plan Project List for Impact Fee Consideration Table 7: Summary of Maximum Supportable Nexus Fees Table 8: Summary of Recommended Development Impact Fees Table 9: Other Potential or Existing City Fees (Non-Impact Fees) Table 10: Impact Fee Calculation for Parks and Trail Facilities Table 11: Impact Fee Calculation for Community Facilities Table 12: Impact Fee Nexus Calculation for Water Infrastructure Water Supply (Citywide) Table 13: Impact Fee Nexus Calculation for Water Infrastructure Impact Fee - Water Distribution (RBD) Table 14: Impact Fee Nexus Calculation for Water Infrastructure Impact Fee - Water Storage (RBD). 39 Table 15: Impact Fee Nexus Calculation for Storm Drainage Impact Fee (RBD) Table 16: Impact Fee Nexus Calculation for Roadway Infrastructure Impact Fee (RBD) Table 17: Fee Calculation for Maximum Supportable Streetscape Infrastructure Impact Fee Table 18: Share of Infrastructure Costs Borne by New Development and the City of East Palo Alto Table 19: Committed Funding Amounts and Sources for Infrastructure Projects Table 20: Discounted Impact Fees, Accounting for Committed Fund Monies Table 21: Estimated Other Funds to Cover Remaining City Contribution Requirement Table 22: Feasible City Contribution to Parks and Trails and Community Facilities Infrastructure Table 23: Reduced Impact Fees for Parks and Trails and Community Facilities Appendix Table A - 1: Population and Employment Density Assumptions

192 Appendix Table A - 2: Assumptions for Population, Employment, and Service Population Projections ( ) Appendix Table A - 3: Housing, Population, and Employment Projection Calculations Appendix Table B - 1: Detailed Project List Appendix Table C - 1: Land Use Assumptions for 25-Year and Year Planning Horizons Appendix Table C - 2: Impervious Factor for Storm Drainage Calculations Appendix Table C - 3: Water Demand Assumptions for Water, Storm Drainage, and Sanitary Sewer (50-80 Year Planning Horizon) Appendix Table C - 4: RBD Trip Totals and Generation Rates (25-Year Planning Horizon) Appendix Table D - 1: Calculations and Assumptions for Quimby Act Fee Estimate Appendix Table D - 2: Calculations and Assumptions for Affordable Housing In-Lieu Fee Estimate Appendix Table D - 3: Calculations and Assumptions for Sanitary Sewer Fee Estimate Appendix Table E - 1: Fee Burden for Development within RBD Appendix Table E - 2: Tabulation of Proportional Per-Acre Fee Burden on Development, by Fee Type67 Appendix Figure E - 1: Proportional Fee Burden on Residential Development Appendix Figure E - 2: Proportional Fee Burden on Non-Residential Development Appendix Table F - 1: Details and Sources of Committed Funding for East Palo Alto Infrastructure Projects Appendix Table F - 2: Details of STAG Funding

193 LIST OF ACRONYMS CIP DEPLAN DU DUA EDA EDI EIR FAR GPD HUD OBAG PSF R&D RBD RSP SF STAG Capital Improvement Program Draft Engineering Plan for RBD Dwelling Unit Dwelling Unit per Acre Economic Development Administration Economic Development Initiative Environmental Impact Report Floor-Area Ratio Gallons Per Day U.S. Department of Housing and Urban Development One Bay Area Grant Per Square Foot Research and Development Ravenswood Business District (Ravenswood/4 Corners Specific Plan Area) Ravenswood/4 Corners Specific Plan/Program EIR Square Foot State Tribal Assistance Grants 7

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195 Executive Summary The primary purpose of this report is to provide the necessary technical documentation and nexus analyses supporting the adoption of an impact fee program in East Palo Alto. Impact fees aim to ensure that new development contributes a fair share of funding to infrastructure improvements including parks and recreation, public facilities, water infrastructure, storm drainage, road improvements, and streetscape elements. To enact a fee program, a city must demonstrate a reasonable and proportional relationship between the fee rate and the impact of anticipated development. This study provides the proof of a nexus between the infrastructure burdens of development growth and the fee exaction. East Palo Alto has developed a list of infrastructure projects necessary to support the anticipated new development over the next twenty years from several City documents including the Capital Improvement Program, the Ravenswood Business District/4 Corners Specific Plan, and the Draft Engineering Plan. Development impact fees are based on the capital cost allocation of these infrastructure projects to new and existing development. Costs are allocated to six land use types (town houses, multi-family housing, office space, R&D space, industrial space, and retail space) based either on service population or intensity of use (such as water infrastructure). Impact fees are developed for two zones, recognizing the anticipated concentration of development in the Ravenswood Business District and its associated infrastructure requirements: the City of East Palo Alto as a whole; and the rezoned parcels within the Ravenswood Business District Specific Plan Area (RBD), a subset of the city. Citywide impact fees will include three infrastructure categories: Parks and Trails, Community Facilities, and Water Infrastructure (water supply). RBD-specific impact fees will include four infrastructure categories: Water Infrastructure (water distribution and water storage), Storm Drainage, Roadway Infrastructure, and Streetscape Infrastructure. Within the RBD, developers of rezoned parcels will be charged citywide impact fees as well as RBD-specific impact fees, to account for their broader infrastructure impacts on the city overall. The following table outlines the recommended development impact fees, as calculated by the nexus analysis. 9

196 Summary of Recommended Development Impact Fees in East Palo Alto Development Impact Fee Town House (per DU 3 ) Multi-Family (per DU 3 ) Office (psf 4 ) R&D (psf 4 ) Industrial (psf 4 ) Retail (psf 4 ) Parks & Trails Citywide fee n/a n/a $0.87 $0.37 $0.25 $0.51 RBD-specific fee n/a n/a n/a n/a n/a n/a Fee charged to development outside RBD 2 $0.00 $0.00 $0.87 $0.37 $0.25 $0.51 Fee charged to development within RBD $0.00 $0.00 $0.87 $0.37 $0.25 $0.51 Community Facilities Citywide fee $510 $422 $0.25 $0.11 $0.07 $0.15 RBD-specific fee n/a n/a n/a n/a n/a n/a Fee charged to development outside RBD $510 $422 $0.25 $0.11 $0.07 $0.15 Fee charged to development within RBD $510 $422 $0.25 $0.11 $0.07 $0.15 Water Infrastructure Citywide fee $1,003 $784 $0.44 $1.49 $1.45 $0.62 RBD-specific fee $3,050 $1,696 $1.17 $3.29 $3.29 $2.88 Fee charged to development outside RBD $1,003 $784 $0.44 $1.49 $1.45 $0.62 Fee charged to development within RBD $4,053 $2,480 $1.61 $4.78 $4.74 $3.50 Storm Drainage Citywide fee n/a n/a n/a n/a n/a n/a RBD-specific fee $4,317 $1,794 $1.51 $3.67 $3.56 $4.96 Fee charged to development not in RBD $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Fee charged to development within RBD $4,317 $1,794 $1.51 $3.67 $3.56 $4.96 Roadway Infrastructure Citywide fee n/a n/a n/a n/a n/a n/a RBD-specific fee $9,898 $11,329 $18.76 $13.82 $11.87 TBA 1 Fee charged to development outside RBD $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Fee charged to development within RBD $9,981 $11,424 $18.91 $13.93 $11.97 TBA 1 Streetscape Citywide fee n/a n/a n/a n/a n/a n/a RBD-specific fee $1,505 $1,245 $0.74 $0.32 $0.21 TBA 1 Fee charged to development outside RBD $0 $0 $0 $0 $0 $0 Fee charged to development within RBD $1,505 $1,245 $0.74 $0.32 $0.21 TBA 1 Total Fees Total fee charged to development outside RBD $1,513 $1,206 $1.56 $1.97 $1.77 $1.28 Total fee charged to development within RBD $20,284 $17,270 $23.73 $23.06 $20.70 $9.11 Source: AECOM, 2013 Notes: 1. Refer to the Impact Fees by Real Estate Product Types section for a more detailed discussion of RBD-specific retail impact fees. In brief, no stand-alone retail is anticipated in the RBD in the 25-year planning horizon, so no impact fees are calculated for this land use for roadway and streetscape infrastructure (which is planned for a 25-year timeframe). In the event that stand-alone retail is developed in the RBD, RBD-specific roadway and streetscape impact fees must be calculated on a case-by-case basis. 2. Residential component of Parks and Trails infrastructure fulfilled by Quimby Act fees. 3. DU = dwelling unit 4. Psf = per square foot 10

197 1. Introduction PURPOSE The primary purpose of this report is to provide the necessary technical documentation and nexus analyses supporting the adoption of an impact fee program in East Palo Alto. Impact fees will be developed for two zones. One zone is the entire city (Figure 1). This zone includes fees for three infrastructure categories: Parks and Trails, Community Facilities, and Water Infrastructure (water supply component). Figure 1: Boundaries of East Palo Alto and the RBD The other zone is the Ravenswood Business District Specific Plan Area (RBD). This zone is limited to the rezoned parcels with the RBD (Figure 2, SP Area Rezoned), and includes fees for four infrastructure 11

198 categories: Water Infrastructure (water distribution and storage components), Storm Drainage, Roadway Infrastructure, and Streetscape Infrastructure. Within the RBD, developers of rezoned parcels will be charged citywide impact fees as well as RBD-specific impact fees. Figure 2: Boundary Details of RBD Impact fees aim to ensure that new development contributes a fair share of funding to infrastructure improvements including public facilities, parks and recreation, water infrastructure, storm drainage, and road improvements. To enact a fee program, a city must demonstrate a reasonable and proportional relationship between the fee rate and the impact of anticipated development. This study provides the proof of a nexus between the infrastructure burdens of development growth, and the fee exaction. This nexus study summarizes the impact fee program, applicable to new development in the City of East Palo Alto. East Palo Alto anticipates significant population and employment growth between 2013 and 2035, necessitating significant new infrastructure and community facilities to support new development. Codifying development impact fees in a nexus study will provide clarity regarding project development costs, and will streamline fee allocation and fee collection, which will be particularly helpful for the City in light of extensive projected development. This nexus study also fulfills the policy directive (Policy UTIL-3.5) in the Ravenswood/4 Corners TOD Specific Plan that the City prepare a nexus study to identify financing for infrastructure improvements within the Ravenswood Business District Specific Plan Area (RBD). 12

199 NEXUS FEE BACKGROUND City governments can charge development impact fees to developers, as a condition of development approval, to finance (or contribute to the financing of) infrastructure that the development requires, such as water supply, drainage, open space, or community facilities. A development impact fee is not a tax or special assessment, but rather a fee directly related to the cost of providing the public infrastructure needed to support that development. The fee amount must be reasonably related to the cost of the public infrastructure provided by the government collecting the fee; otherwise, the fee may be considered a special tax and subjected to two-thirds voter approval. Thus, development impact fees may not be levied to pay for existing infrastructure deficiencies, unrelated to the impacts of new development. A jurisdiction must legislatively adopt findings of a reasonable relationship between the purpose of the fee and the impact created by the new development, as well as a proportional relationship between the amount of the fee and the amount of the impact, before enacting a development impact fee program. Although local governments began levying impact fees in the 1920s as a way to finance infrastructure, in 1987, the California legislature passed the Mitigation Fee Act (Assembly Bill 1600, or the Act) to establish the principles governing impact fee exactions and, to some extent, to codify existing constitutional requirements. The related Government Code Sections establish legal requirements to implement a development fee program for fees that meet the terms of the Act. According to the Act, to establish a development fee program, a jurisdiction must legislatively accept a nexus study that identifies: the purpose of any fees; how fees will be used; a reasonable relationship between the fee-funded public infrastructure and the type of development paying the fee; and a proportional relationship between the amount of the fee and the amount of the impact, or demand created by the new development paying the fee. Development impact fees are common among Californian cities and are a well-accepted way to fund a variety of public infrastructure such as roads, sewer and water facilities, and community facilities (park buildings, libraries, and fire protection services) to accommodate new development. East Palo Alto does not have a standard, legislated impact fees structure. Instead, impact fees are traditionally negotiated on a case-by-case basis, an approach that is more vulnerable to legal challenge and is more staff-intensive to administer. Project-specific fees imposed on an ad hoc basis must be supported by project-specific analyses of a nexus between the fees exacted and the development, and by project-specific analyses of rough proportionality between the fees exacted and the impact of the development. Under this process, the burden of proof of nexus is the responsibility of the government and is labor-intensive for city staff. In the event of a legal challenge, individual nexus justifications are scrutinized more stringently than generally applicable legislated fees. 13

200 In September 2012, East Palo Alto s City Council accepted the Ravenswood/4 Corners Transit Oriented Development Specific Plan (Specific Plan) which proposes a framework for transforming 350 acres in northeast East Palo Alto into a new downtown. The Specific Plan projects significant growth in the Specific Plan Area (RBD) in housing, employment, and non-residential space. This projected new growth will require significant investment in new or upgraded infrastructure, including water supply, drainage, roads, parks, libraries, and community centers. Development impact fees will help fund this development-necessitated infrastructure. However, with the volume of projected growth, the current case-by-case approach to charging fees is impractical; a standard fee system is more appropriate. With high growth (and a large number of development applications), a systematic, fair, and proportional process for applying fees is more legally defensible, as well as much easier and faster to administer. Given the legal risks and bureaucratic challenges of the current impact fees, and the adoption of an ambitious plan for accelerated development and growth, East Palo Alto commissioned this nexus study to codify their development impact fee program. A uniform and legally defensible impact fee program will better support the projected development program. 14

201 2. Development Forecast Demographic projections and land uses drive the demand for city public improvements, because, in general, the more people (either residents or employees), the higher the demand for city infrastructure and services. New development generates and accommodates the projected growth in population and employment and therefore is assigned the associated infrastructure costs for infrastructure that serves the increase in the local service population (see the following demographic projections write-up for an explanation of service population). East Palo Alto is projected to experience significant population and employment growth, especially given the development plan for the Ravenswood/4 Corners Specific Plan Area (RBD). The following section outlines the development growth assumptions and land use projections in East Palo Alto, given the RBD. DEMOGRAPHIC PROJECTIONS Demographic projections include population and employment projections for East Palo Alto. A detailed discussion of projection methodology is included in Appendix Table A - 3. summarizes the population and employment projections developed for East Palo Alto, at a citywide level, within the RBD, and in the city excluding the RBD (non-rbd). A service population calculation is included in Table 1, based on the population and employment projections. Service population is a relatively standardized concept in economic modeling that determines the level of capital infrastructure demand placed on a given infrastructure from additional development. A city s total service population is calculated as one times the resident population plus half of the employment population (2:1 ratio). This approach evaluates infrastructure demand based on both place of residence and place of work. Under this model, resident-employees (i.e. persons that both live and work in East Palo Alto) are counted twice, once for their home location, and once for where they work. This methodology accounts for the infrastructure need generated both at their place of work and at their place of residence (e.g. required roadways near their home and near their office). While employees require similar amounts of capital improvements (roads, storm drains, etc.) as residents, the employee factor has been discounted by 50 percent, to half that of residents. This reflects a conservative approach to their capital infrastructure demand. This 2:1 ratio serves as the basis for the service population calculation. 15

202 Table 1: Population, Employment, and Service Population ( ) * Zone Growth ( ) Source/Calculation Resident Population A East Palo Alto 9,875 See Note 1 B RBD 2,766 See Note 1 Employment Population C East Palo Alto 7,814 See Note 1 D RBD 4,851 See Note 1 Service Population E East Palo Alto 13,782 A * 1 + C * 0.5 (see Note 2) F RBD 5,192 B * 1 + D * 0.5 (see Note 2) Source: AECOM, 2013 Notes: 1. Sociodemographic growth projections calculated as part of AECOM s Task 1 & 2 deliverable memorandum Growth Assumptions and Benchmark Case Studies Table 2). Please refer to Appendix Table A - 3 for a summary of the methodology. Sources include Ravenswood/4 Corners TOD Specific Plan EIR Table 5-1 Comparison of Buildout Figures, and ABAG 2009 Citywide estimates. 2. Refer to the above Demographic Projections section for a more detailed explanation of service population. In brief, service population is a concept in economics that accounts for the infrastructure demand of both residents (at their place of residence) and employees (at their place of work). As a conservative approach, the infrastructure demand of employees is discounted by half. DEVELOPMENT PROJECTIONS Development projections for East Palo Alto include both residential and non-residential square footage build-out forecasts (Table 2). Citywide projections for housing and non-residential built square footage are given for a 25-year planning horizon. With the detailed development analysis done for the RBD, development projections for the RBD include more detail, with housing forecasts by type (townhouse or multi-family) and density, and non-residential forecasts by land acreage, built square footage, and floorarea ratio (FAR). A development scenario for a 50- to 80-year planning horizon is included, given that some infrastructure items (water infrastructure) are engineered for a longer lifecycle. 16

203 Table 2: Development Projections for 25-Year and Year Planning Horizons 25 Year Planning Horizon - Growth City of East Palo Alto Acreage Number Density (DUA) Housing Units n/a 2,371 n/a Land SF Built SF FAR Office n/a 1,653,000 n/a Industrial n/a 240,000 n/a R&D n/a 156,000 n/a Retail n/a 353,000 n/a RBD Acreage Number Density (DUA) Townhouses Multi-Family Housing Land SF Built SF FAR Office 901,000 1,250, Industrial 433, , R&D 217, , year Planning Horizon - Growth RBD Acreage Number Density (DUA) Townhouses Multi-Family Housing 23 1, Land SF Built SF FAR Office 1,192,000 1,568, Industrial 1,804, , R&D 1,281, , Retail 328, , Source: City of East Palo Alto, 2013 PROJECTED INFRASTRUCTURE REQUIREMENTS The list of required infrastructure projects to support new development was developed through various adopted plans and programs, including East Palo Alto s adopted ten-year Capital Improvement Program (CIP), the Ravenswood 4/Corners Specific Plan/Program EIR (RSP), and the Draft Engineering Plan for the RBD (DEPLAN). Community amenity projects include the construction of parks, trails, and open space, the construction of community facilities (for example, a library, a police department building, a health clinic expansion), and the construction of pedestrian-friendly streetscape (such as sidewalks with lighting, trees, sidewalk furniture). Other infrastructure projects include water, drainage, and roadway infrastructure. Water and drainage infrastructure projects include installation of water and storm drain pipes, emergency water storage facilities, and new water sources (establishment of a groundwater well and well rehabilitation). Roadway infrastructure includes the construction of new roads. A detailed 17

204 summary of the infrastructure projects is included in Appendix B: Detailed Project List. Table 3 summarizes the costs for all infrastructure projects necessary to support new development. The following sub-sections briefly outline each of the three source documents and plans (CIP, RSP, and DEPLAN). Table 3: Infrastructure Project Costs List Infrastructure Item Project Cost Associated Fees Charged in RBD or Citywide Parks & Trails $51,027,000 Citywide Community Facilities $41,815,000 Citywide Water Infrastructure - Water Supply $5,400,000 Citywide Water Infrastructure Other (Distribution) $4,838,300 RBD Water Infrastructure Other (Storage) $5,000,000 RBD Storm Drainage $15,413,400 RBD Road Infrastructure $43,379,000 RBD Streetscape $4,427,000 RBD Sanitary $3,441,620 No impact fees charged for sanitary Source: City of East Palo Alto, CIP, RSP and DEPLAN TEN-YEAR CAPITAL IMPROVEMENT PROGRAM (CIP) [ADOPTED 2013] Since 2010, the City of East Palo Alto has undertaken annual capital planning to prioritize investments in capital projects. In June 2013, the City Council adopted the 2013/2014 ten-year CIP, which includes projects for water supply, water storage, parks and trails, and community facilities. 1 The CIP includes approximately $46.5 million in gross infrastructure development costs. In terms of water infrastructure, the CIP includes water supply projects for two groundwater wells that would provide emergency and domestic groundwater, and a two-million gallon water storage project that would hold enough emergency water to serve new development. Several parks, trails and community facilities projects are included in the CIP to support new development as well. Table 4 summarizes all relevant CIP projects and costs. 1 The most recently adopted CIP is available online at 18

205 Table 4: Capital Improvement Project List for Impact Fee Consideration Infrastructure Item Description Project Cost Parks and Trails $8,978,000 Martin Luther King Jr. Park Improvements PK-07 $450,000 Joel Davis Park Improvements PK-08 $260,000 Park/Trail Adjacent to San Francisquito Creek PK-10 $3,250,000 Jack Farrell Park Improvements PK-11 $220,000 Baylands Park PK-12 $4,368,000 Bell Street Park Improvements PK-13 $430,000 Community Facilities $25,345,000 Community Facilities Master Plan FA-01 $100,000 Community Development Building FA-02 $90, University Avenue Building FA-03 $10,000 Senior Center Building FA-04 $30,000 Police Department Building FA-05 $10,000,000 Corporation Yard Building FA-06 $100,000 New City Hall FA-07 $15,000,000 Media Center Improvement - $15,000 Water Infrastructure Water Supply Infrastructure Gloria Well Assessment/Rehabilitation $2,000,000 Water Supply Infrastructure 2nd Groundwater Well $3,400,000 Water Storage Infrastructure 2 million gallon tank for (emergency) water storage $5,000,000 Cost Sub-Total $44,723,000 Source: City of East Palo Alto, 2013 RAVENSWOOD BUSINESS DISTRICT/4 CORNERS SPECIFIC PLAN (RSP) $5,400,000 (Water Supply) $5,000,000 (Other Water) The East Palo Alto City Council adopted the RBD/4 Corners Specific Plan (RSP) and certified the associated program EIR on September 4, The RSP and associated EIR identify many of the facilities required to support the development projected in the RBD, in particular traffic mitigations at various intersections, an arterial Loop Road connection to University Avenue, 30 acres of parks, five miles of new Class I trails, and community facilities. The original project lists were included as Attachment A in the Specific Plan, but the costs have been updated (2013) to approximately $91 million in gross costs. Table 5 summarizes all RSP projects and costs. 2 The documents are available online at 19

206 Table 5: Ravenswood Business District/4 Corners Specific Plan Project List for Impact Fee Consideration Infrastructure Item Description Project Cost Parks and Trails $42,049,114 #1. Fordham Road - Improvements #1, Fig 4-2 $1,201,500 #2. Purdue Avenue - Trail Improvements #2, Fig 4-2 $176,175 #3. Trail Gap Closures #3, Fig 4-2 $1,058,400 #4. Hetch Hetchy ROW Trail #4, Fig 4-2 $338,877 #5. Bay Trail Con. Boardwalk (Spur to Bay Trail) #5, Fig 4-2 $2,970,000 #7. UP Rail Spur Trail Demeter to Bay Rd. #7, Fig 4-2 $1,282,500 #8. Bay Trail (Weeks to Bay Rd.) #8, Fig 4-2 $486,000 #10. UP Spur Trail- Pulgas Ave. to Bay levee #10, Fig 4-2 $843,750 #11. Purdue Avenue Pedestrian Paseo #11, Fig 4-2 $1,130,625 #12. View Corridor Trail #12, Fig 4-2 $826,200 #13. Trail Along Romic (between Purdue and Bay) #13, Fig 4-2 $1,012,500 #14. Hetch Hetchy ROW Park #14, Fig 4-2 $3,071,250 #15. Bay Road Park #15, Fig 4-2 $10,530,000 #16. Bay & Univ. NE Corner #16, Fig 4-2 $211,702 #17. End of Weeks #17, Fig 4-2 $1,499,553 #18. Purdue Park #18, Fig 4-2 $3,577,500 4 Corners Plaza #1, Fig 4-2 $3,213,000 #19. Purdue Pedestrian Paseo #19, Fig 4-2 $1,005,583 #20. TBD small Park #20, Fig 4-2 $540,000 #21. TBD small Plaza #21, Fig 4-2 $324,000 #22. Cooley Landing #22, Fig 4-2 $6,750,000 Community Facilities $21,735,000 Purdue Recreation Center Fig 4-1, p47-48 $4,320,000 4 Corners Community Center Fig 4-1, p47-48 $8,640,000 Library Fig 4-1, p47-48 $3,510,000 Roadway Improvement Requirements $24,447,272 Loop Road RBD arterial $22,346,672 EIR Traffic Mitigations EIR Required $2,100,600 Cost Sub-Total $82,966,387 Source: City of East Palo Alto, 2013 DRAFT ENGINEERING PLAN RAVENSWOOD DISTRICT (DEPLAN) The Draft Ravenswood Business District Engineering Plan (DEPLAN) was recommended for adoption by the Public Works and Transportation Commission and by the Planning Commission in December 2008 and February 2009, respectively. In April 2009, the East Palo Alto City Council adopted Resolution 2903, which adopted the DEPLAN as the basis of design for the Bay Road project. In 2013, Wilsey Ham updated the original DEPLAN cost estimates. 3 3 The DEPLAN is available at 20

207 Infrastructure work on roads, streetscape, utility undergrounding, storm drains, sanitary sewers, and water distribution is necessary for the development in the RBD, since the RBD does not currently have the infrastructure to support additional development. The DEPLAN represents the lowest cost alternative considered for infrastructure engineering for the RBD. The DEPLAN includes: (1) a gravity storm drain system that flows to the O Connor Pump Station via an existing drainage canal between Runnymede Avenue and the O Connor Pumping station detention pond; (2) a gravity sanitary sewer system that connects to the existing trunk line along the levee; (3) a water distribution system of 12-inch force main pipes throughout the district; (4) trenched and buried electric and telecommunication utilities; (5) some road work; and (6) streetscape improvements (based on the streetscape improvements built as part of Bay Road Phase I along Bay Road between University Avenue and Clarke Avenue). The total cost for the DEPLAN improvements is approximately $57 million. 4 Table 6 summarizes all DEPLAN projects and costs. Table 6: Draft Engineering Plan Project List for Impact Fee Consideration Infrastructure Item Description Project Cost Water Infrastructure - Other $4,838,327 Water Distribution Infrastructure Network of water pipes in RBD $4,838,327 Storm Drainage $15,413,372 Storm Drainage Infrastructure Storm drainage pipes in RBD $15,413,372 Sanitary Sewer Infrastructure $3,441,624 Sanitary Sewer Infrastructure Sanitary sewer pipes and other sanitary service improvements in RBD $3,441,624 Roadway Improvement Requirements $18,931,655 Roadway improvements as per DEPLAN and RSP Building street structure work in RBD $18,931,655 Streetscape Elements $4,427,134 Streetscape improvements Pedestrian, aesthetic, and safety improvements $4,427,134 Cost Sub-Total $47,052,112 Source: City of East Palo Alto, Note that the cost has remained remarkably stable over time. In 2000, the RBD LLC, which represents landowners in the RBD, prepared a separate engineering study for infrastructure in the RBD. The 2000 estimate was $29 million, which is approximately equivalent to $55 million in 2013 dollars. 21

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209 3. Impact Fee Summary INFRASTRUCTURE CATEGORIES A nexus between development and impact fees will be determined for the following six infrastructure types: Parks and trails Public facilities Water infrastructure, including water supply, water storage, and water distribution Storm Drainage Roadway improvements Streetscape improvements These infrastructure elements were identified by the City as the six areas where development citywide and in the RBD will require new capital investment. A detailed discussion of the impact fee determination for each infrastructure category is included in Chapter 4. IMPACT FEE ZONES To properly apportion infrastructure costs to the associated need, the nexus analysis uses two impact fee zones: one zone for the entire city (Figure 1), and one zone for the RBD (Figure 2). Some facilities, such as parks, have citywide benefit and demand. For the infrastructure elements that impact the whole city, fees are charged citywide. The RBD, where the majority of new development is anticipated, has significant backbone infrastructure requirements. For these infrastructure elements, impact fees are charged to developers building on 23

210 rezoned parcels within the RBD. That is, RBD-specific impact fees will be levied on projects on land that was rezoned as part of the RBD/4 Corners Specific Plan Area (RBD). 5 CITYWIDE IMPACT FEES The impact fee program developed for three infrastructure categories will be assigned citywide: parks and trails; public facilities; and water infrastructure (water supply). These infrastructure assets provide critical open space, water supply, and community facility infrastructure to the entire community and therefore capital costs are shared citywide. RBD-SPECIFIC IMPACT FEES Impact fees for four infrastructure categories will be charged only within the RBD: water infrastructure (distribution and storage); storm drainage; road improvements; and streetscape facilities. The water, drainage, and road infrastructure assets will be constructed specifically to serve the RBD, providing critical backbone infrastructure to support new development in the RBD. Streetscape is a local amenity and will benefit the RBD only. Therefore, the impact fees for these infrastructure facilities will be charged only within the RBD. IMPACT FEES BY REAL ESTATE PRODUCT TYPES Impact fees vary by real estate product type, and this nexus considers six different land uses: Townhouse (residential) Multi-Family (residential) Office (non-residential) R&D (non-residential) Industrial (non-residential) Retail (non-residential) In general, retail uses in the RBD are projected to occur only within mixed-use housing projects in the 25-year planning horizon, and separate retail RBD-specific impact fees (for roadways and streetscape) 5 Note that not all land area within the RBD was rezoned (Figure 1). RBD impact fees will not apply to the existing single family zoning in the University Village neighborhood. 24

211 are not calculated for retail space, on top of the residential project impact fees. For the 50- to 80-year planning horizon, some stand-alone retail is projected to develop, and therefore RBD-specific water infrastructure impact fees for retail have been calculated. If stand-alone retail is developed in the RBD, case-by-case impact fees for roadway and streetscape infrastructure will need to be calculated. Some retail development is projected for East Palo Alto, outside of the RBD, so impact fees for the citywide categories (parks and trails, and community facilities) are calculated. SUMMARY OF MAXIMUM SUPPORTABLE NEXUS FEES This nexus analysis first calculated the maximum supportable fees that the City of East Palo Alto could charge to development. These fees (Table 7) assume that development will pay fees to account for 100 percent of development s allocated share of infrastructure costs. However, the City, in several cases, should adopt a lower fee as appropriate (Table 8 6 ). Where existing or dedicated funding streams defray the infrastructure project cost, the nexus fees charged to a developer can be lower than the fees in Table 7. Where funding sources to meet the City s allocated share of infrastructure costs are not yet identified, the City must charge a lower impact fee, commensurate with the proportion of the City s share for which the City has identified funding. Chapter 5 (Additional Funding Sources and City Contributions) outlines these impact fee reductions in more detail. 6 Note that although the fee reductions shown in Table 8 are calculated by evenly distributing the fee discount across all land uses, the fee reductions do not need to be evenly distributed across all uses. The City could choose to reduce nonresidential-use fees only, maintaining the residential-use fees. Chapter 5 (Committed City Funds) contains a more detailed discussion. 25

212 Table 7: Summary of Maximum Supportable Nexus Fees Development Impact Fee Town House (per DU) Multi-Family (per DU) Office (psf) R&D (psf) Industrial (psf) Retail (psf) Parks & Trails Citywide fee n/a n/a $2.35 $1.00 $0.67 $1.39 RBD-specific fee n/a n/a n/a n/a n/a n/a Fee charged to development outside RBD 2 $0.00 $0.00 $2.35 $1.00 $0.67 $1.39 Fee charged to development within RBD $0.00 $0.00 $2.35 $1.00 $0.67 $1.39 Community Facilities Citywide fee $3,895 $3,222 $1.92 $0.82 $0.55 $1.14 RBD-specific fee n/a n/a n/a n/a n/a n/a Fee charged to development not in RBD $3,895 $3,222 $1.92 $0.82 $0.55 $1.14 Fee charged to development within RBD $3,895 $3,222 $1.92 $0.82 $0.55 $1.14 Water Infrastructure Citywide fee $1,003 $784 $0.44 $1.49 $1.45 $0.62 RBD-specific fee $3,050 $1,696 $1.17 $3.29 $3.29 $2.88 Fee charged to development not in RBD $1,003 $784 $0.44 $1.49 $1.45 $0.62 Fee charged to development within RBD $4,053 $2,480 $1.61 $4.78 $4.73 $3.49 Storm Drainage Citywide fee n/a n/a n/a n/a n/a n/a RBD-specific fee $5,792 $2,407 $2.02 $4.92 $4.77 $6.65 Fee charged to development not in RBD $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Fee charged to development within RBD $5,792 $2,407 $2.02 $4.92 $4.77 $6.65 Roadway Infrastructure Citywide fee n/a n/a n/a n/a n/a n/a RBD-specific fee $11,967 $13,698 $22.68 $16.71 $14.36 TBA 1 Fee charged to development not in RBD $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Fee charged to development within RBD $11,967 $13,698 $22.68 $16.71 $14.36 TBA 1 Streetscape Citywide fee n/a n/a n/a n/a n/a n/a RBD-specific fee $3,457 $2,859 $1.71 $0.73 $0.49 TBA 1 Fee charged to development not in RBD $0 $0 $0 $0 $0 $0 Fee charged to development within RBD $3,457 $2,859 $1.71 $0.73 $0 TBA 1 Total fee charged to development not in RBD $4,899 $4,006 $4.71 $3.31 $2.67 $3.14 Total fee charged to development within RBD $29,165 $24,665 $32.28 $28.95 $25.57 $12.66 Source: AECOM, 2013 Notes: 1. Refer to the Impact Fees by Real Estate Product Types section for a more detailed discussion of RBD-specific retail impact fees. In brief, no stand-alone retail is anticipated in the RBD in the 25-year planning horizon, so no impact fees are calculated for this land use for roadway and streetscape infrastructure (which is planned for a 25-year timeframe). In the event that stand-alone retail is developed in the RBD, RBD-specific roadway and streetscape impact fees must be calculated on a case-by-case basis. 2. Residential component of Parks and Trails infrastructure fulfilled by Quimby Act fees. 26

213 Table 8: Summary of Recommended Development Impact Fees Development Impact Fee Town House (per DU) Multi-Family (per DU) Office (psf) R&D (psf) Industrial (psf) Retail (psf) Parks & Trails Citywide fee n/a n/a $0.87 $0.37 $0.25 $0.51 RBD-specific fee n/a n/a n/a n/a n/a n/a Fee charged to development outside RBD 2 $0.00 $0.00 $0.87 $0.37 $0.25 $0.51 Fee charged to development within RBD $0.00 $0.00 $0.87 $0.37 $0.25 $0.51 Community Facilities Citywide fee $510 $422 $0.25 $0.11 $0.07 $0.15 RBD-specific fee n/a n/a n/a n/a n/a n/a Fee charged to development outside RBD $510 $422 $0.25 $0.11 $0.07 $0.15 Fee charged to development within RBD $510 $422 $0.25 $0.11 $0.07 $0.15 Water Infrastructure Citywide fee $1,003 $784 $0.44 $1.49 $1.45 $0.62 RBD-specific fee $3,050 $1,696 $1.17 $3.29 $3.29 $2.88 Fee charged to development outside RBD $1,003 $784 $0.44 $1.49 $1.45 $0.62 Fee charged to development within RBD $4,053 $2,480 $1.61 $4.78 $4.74 $3.50 Water Infrastructure Citywide fee n/a n/a n/a n/a n/a n/a RBD-specific fee $4,317 $1,794 $1.51 $3.67 $3.56 $4.96 Fee charged to development outside RBD $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Fee charged to development within RBD $4,317 $1,794 $1.51 $3.67 $3.56 $4.96 Roadway Infrastructure Citywide fee n/a n/a n/a n/a n/a n/a RBD-specific fee $9,898 $11,329 $18.76 $13.82 $11.87 TBA 1 Fee charged to development outside RBD $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Fee charged to development within RBD $9,981 $11,424 $18.91 $13.93 $11.97 TBA 1 Streetscape Citywide fee n/a n/a n/a n/a n/a n/a RBD-specific fee $1,505 $1,245 $0.74 $0.32 $0.21 TBA 1 Fee charged to development outside RBD $0 $0 $0 $0 $0 $0 Fee charged to development within RBD $1,505 $1,245 $0.74 $0.32 $0.21 TBA 1 Total Fees Citywide subtotal $1,822 $1,461 $1.71 $2.03 $1.81 $1.37 RBD-specific subtotal $18,770 $16,064 $22.17 $21.09 $18.93 $7.83 Total fee charged to development outside RBD $1,513 $1,206 $1.56 $1.97 $1.77 $1.28 Total fee charged to development within RBD $20,284 $17,270 $23.73 $23.06 $20.70 $9.11 Source: AECOM, 2013 Notes: 1. Refer to the Impact Fees by Real Estate Product Types section for a more detailed discussion of RBD-specific retail impact fees. In brief, no stand-alone retail is anticipated in the RBD in the 25-year planning horizon, so no impact fees are calculated for this land use for roadway and streetscape infrastructure (which is planned for a 25-year timeframe). In the event that stand-alone retail is developed in the RBD, RBD-specific roadway and streetscape impact fees must be calculated on a case-by-case basis. 2. Residential component of Parks and Trails infrastructure fulfilled by Quimby Act fees. 27

214 OTHER EXISTING OR POTENTIAL CITY IMPACT FEES East Palo Alto currently charges Quimby Act fees for recreation and open space, is exploring potential fees for affordable housing, and will charge sanitary sewer fees. These fees are discussed in the following sub-sections. QUIMBY ACT FEES The City currently levies park and open space fees on residential development, as per the Quimby Act, California Government Code Section and Ordinance 145, adopted July 29, This report recommends that Quimby Act fees remain in place on residential development. This study establishes the nexus for an impact fee for parks and open space to be levied on non-residential development. AFFORDABLE HOUSING FEES In terms of affordable housing fees, options exist for residential in-lieu fees and commercial linkage fees. The following sub-sections explore both of these options for East Palo Alto. Affordable Housing In-Lieu Fees The City is exploring the possibility of levying an affordable housing in-lieu fee on residential development to support the production of affordable housing units. The approximate maximum potential affordable housing fee is $23 per square foot for each residential unit. The law allows cities to charge the maximum amount or a lower amount. The in-lieu fee would be approximately $23,000 per unit for a 1,000 square foot townhome and $18,975 for an 875-square-foot multi-family unit. The proposed in-lieu fee is being considered since aspects of the City s Below Market Rate Ordinance were invalidated in a recent State Supreme Court decision. 7 A separate affordable housing nexus analysis would need to be undertaken to determine the impact fee amounts more precisely and defensibly. Affordable Housing Commercial Linkage Fee A non-residential affordable housing fee may be levied in the form of a commercial linkage fee. East Palo Alto is not pursuing a commercial linkage fee for affordable housing, however, because of the need for significant backbone infrastructure. Cities add commercial linkage fees to successful commercial areas with existing infrastructure for example, the City of Menlo Park levies an affordable housing commercial linkage fee of $14 per square foot on a thriving commercial sector with most backbone infrastructure in place. In East Palo Alto, a commercial linkage fee would discourage commercial development, which is counter-productive to the City s goals. EAST PALO ALTO SANITARY SEWER DISTRICT (EPASD) DISCUSSION Table 3 includes approximately $3.4 million in sanitary sewer improvements for the RBD in the DEPLAN. Most of the RBD is within the boundary of the East Palo Alto Sanitary District (EPASD), which is an independent special district. In addition, the Facciola property, located at the northern terminus of Demeter Street, is in the separate West Bay Sanitation District. 7 Palmer/Sixth Street Properties v. City of Los Angeles 2009 W.L (Cal. App. July 22, 2009) 28

215 The City will not levy impact fees for sanitary sewer infrastructure because it falls under the jurisdiction of the EPASD. EPASD will recover costs through connection fees or some other mechanism levied by EPASD. However, a theoretical impact fee will be roughly calculated as a proxy for potential sanitary sewer costs, to help fully represent development costs. SUMMARY OF QUIMBY, AFFORDABLE HOUSING, AND SANITARY SEWER ESTIMATED FEES Although Quimby fees, affordable housing in-lieu fees, and sanitary sewer connection fees are not technically impact fees, this study includes estimates of these potential other fees (Table 9) to represent the full burden of all fees on development. The methodology used to arrive at these fee estimates is included in Appendix D: Non-Impact Fee Estimate Determinations. Table 9: Other Potential or Existing City Fees (Non-Impact Fees) Other City Fee Estimates (Non-Impact Fees) Town House (per DU) Multi-Family (per DU) Office (psf) R&D (psf) Industrial (psf) Retail (psf) Quimby Act Citywide fee $8,210 $8,210 n/a n/a n/a n/a RBD-specific fee n/a n/a n/a n/a n/a n/a Fee charged to development outside RBD $8,210 $8,210 $0.00 $0.00 $0.00 $0.00 Fee charged to development within RBD $8,210 $8,210 $0.00 $0.00 $0.00 $0.00 Affordable Housing In-Lieu Fee Citywide fee $23,000 $18,975 n/a n/a n/a n/a RBD-specific fee n/a n/a n/a n/a n/a n/a Fee charged to development outside RBD $23,000 $18,975 $0.00 $0.00 $0.00 $0.00 Fee charged to development within RBD $23,000 $18,975 $0.00 $0.00 $0.00 $0.00 Sanitary Sewer Citywide fee n/a n/a n/a n/a n/a n/a RBD-specific fee $877 $670 $0.35 $1.23 $1.20 $0.53 Fee charged to development outside RBD $0 $0 $0 $0 $0 $0 Fee charged to development within RBD $877 $670 $0.35 $1.23 $1.20 $0.53 Source: City of East Palo Alto, AECOM,

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217 4. Detailed Impact Fee Calculations This chapter describes the nexus calculation for each impact fee category and land use type. Note that for each fee calculation, four percent of the infrastructure construction cost is included to cover administrative services. Administrative costs include City expenses to operate the impact fee program, generate annual reports, and perform updates to the nexus study every five years as required under AB (Chapter 6, Ongoing Administration contains more specifics about administrative requirements). PARKS AND TRAILS PURPOSE Recreation and open space is a common, City-provided public amenity. East Palo Alto, like most cities, aims to provide adequate quality open space through parks and trails for the broader public health and quality of life of its citizens and workforce. In addition to providing opportunities for physical activity and interaction with the natural environment, East Palo Alto aims to conserve the natural open space resources in the city. The Baylands, the shoreline, San Francisquito Creek, significant tree stands, and so on, represent natural resources, with habitat and ecosystem implications, that the City aims to preserve and protect, through parks and trails projects. The Conservation and Open Space Element of East Palo Alto s General Plan outlines these City goals and objectives. NEXUS METHODOLOGY As new development occurs, it attracts new residents and employees, who, in turn, require new (or expanded and improved) open space. This relationship between new development, an influx of residents and workers, and an additional demand for parks and trails provides the nexus for an impact fee. In recognition of this infrastructure need, the City of East Palo Alto included parks and trails projects in the CIP and RSP to augment open space in East Palo Alto. The CIP and RSP contain 29 parks and trails projects with a gross cost of approximately $53 million, including new parks and five miles of new trails in the RBD, trails along San Francisquito Creek, and construction of the Hetch Hetchy trail and park. 31

218 The cost for these parks and trails infrastructure will be shared across the service population, since both residents and workers access parks and trails for recreation, commuting, and interaction with nature. With a small land area of just over two and a half square miles, distribution of parks, trails and public facilities within the city is largely an immaterial concern, since a park, trail or public facility anywhere within the city would generally be accessible to all residents and employees. Rather, the adequate provision of parks, trails, and public facilities is the primary infrastructure need. As a corollary, the network of parks, trails, and public facilities in East Palo Alto can be considered a citywide asset: any parks, trails, and public facilities within the RBD would benefit, not just the RBD, but the rest of the city as well; any parks, trails, and public facilities outside of the RBD would benefit, not just the rest of the city, but the RBD as well. For this reason, as noted in Chapter 0, impact fees for parks and trails, and public facilities will be charged citywide, on non-residential development, with new development paying its fair share. 8 The projected new service population by 2035 a direct result of new development represents 32 percent of the total service population in 2035, and will therefore be responsible for 32 percent of the gross cost for parks and trails projects (approximately $16.8M, including a 4 percent administrative fee). To apportion the gross cost for which new development is responsible among commercial square footage, the $16.8M is divided by new service population and multiplied by the average commercial density (service population per square footage). Table 10 shows the impact fee calculation and the maximum supportable impact fees for parks and trails infrastructure. 8 Residential development is charged for parks and trails infrastructure via Quimby Act fees. 32

219 Table 10: Impact Fee Calculation for Parks and Trail Facilities * Measure Value Source / Calculation Service Population A Total projected service population (2035) 43,513 Appendix Table A - 2 B Total new service population ( ) 13,782 Table 1 C New growth as % of total service population (2035) 32% B / A Cost D Total cost for additional parks and trails infrastructure $51,027,114 Table 3 E Cost attributable to new service population $16,162,153 D * C F Cost attributable to new service population, with 4% administrative fee $16,808,629 E * 1.04 G Unit cost for parks and trails infrastructure ($ / service population unit) $1, F / B Commercial Unit Conversions H Office (square footage / service population) 520 Appendix Table A - 1 I R&D (square footage / service population) 1220 Appendix Table A - 1 J Industrial (square footage / service population) 1820 Appendix Table A - 1 K Retail (square footage / service population) 880 Appendix Table A - 1 Non-Residential Nexus Fee Maximums Office ($/SF) $2.35 G / H R&D ($/SF) $1.00 G / I Industrial ($/SF) $0.67 G / J Retail ($/SF) $1.39 G / K Source: AECOM,

220 COMMUNITY FACILITIES PURPOSE A rich civic realm includes the provision of a variety of community facilities, from public safety institutions such as police departments, to educational amenities such as libraries, to governance buildings such as City Hall, to quality of life services such as senior centers. The Land Use Element of East Palo Alto s General Plan explicitly states a goal to provide adequate public facilities and services for its residents and workforce. NEXUS METHODOLOGY As new development occurs, it attracts new residents and employees, who, in turn, require new (or expanded and improved) community facilities. This relationship between new development, an influx of residents and workers, and an additional demand for community facilities provides the nexus for an impact fee. In recognition of this infrastructure need, the City of East Palo Alto included community facility projects in the CIP and RSP to augment community facilities in East Palo Alto. The CIP and RSP contain 12 projects, with a gross cost of approximately $49 million. These projects include a new police department building, a Recreation Center at Purdue and Demeter, a 4 Corners Community Center, and a library expansion. The cost for these community facilities will be shared across the service population, since both residents and workers use police services, libraries, and so on. As noted in Chapter 0, impact fees are charged citywide, on residential and non-residential development, with new development paying its fair share. The new service population by 2035 a direct result of new development represents 32 percent of the total service population in 2035, and will therefore be responsible for 32 percent of the gross cost for community facilities projects (approximately $15.5M, including a 4 percent administrative fee). To apportion the gross cost for which new development is responsible among residential or commercial square footage, the per-person cost ($15.5M divided by new service population) is multiplied by average residential or commercial densities. Table 11 shows the impact fee calculation and the maximum supportable impact fees for community facilities. 34

221 Table 11: Impact Fee Calculation for Community Facilities * Measure Value Source / Calculation Service Population A Total projected service population (2035) 43,513 Appendix Table A - 2 B Total new service population ( ) 13,782 Table 1 C New growth as % of total service population (2035) 32% B / A Cost D Total cost for additional community facilities $41,815,000 Table 3 E Cost attributable to new service population $13,244,340 D * C F Cost attributable to new service population, with 4% administrative fee $13,774,113 E * 1.04 G Unit cost for community facilities ($ / service population) $999 F / B Residential Unit Conversions H Townhouse (service population / DU) 3.9 Appendix Table A - 1 I Multi-Family (service population / DU) 3.2 Appendix Table A - 1 Commercial Unit Conversions J Office (square footage / service population) 520 Appendix Table A - 1 K R&D (square footage / service population) 1220 Appendix Table A - 1 L Industrial (square footage / service population) 1820 Appendix Table A - 1 M Retail (square footage / service population) 880 Appendix Table A - 1 Residential Nexus Fee Maximums Townhouse ($ / DU) $3,895 G * H Multi-Family ($ / DU) $3,222 G * I Non-Residential Nexus Fee Maximums Office ($/SF) $1.92 G / J R&D ($/SF) $0.82 G / K Industrial ($/SF) $0.55 G / L Retail ($/SF) $1.14 G / M Source: AECOM,

222 WATER INFRASTRUCTURE PURPOSE Water services are critical infrastructure for urban function: central water supply and water pipe networks provide water to buildings and homes; and water storage supplies firefighting efforts during fire incidents. Water connections (from centralized supplies) are common, City-provided public services. East Palo Alto, like most cities, aims to provide adequate water infrastructure, as stated in the Land Use Element of their General Plan and in the policy directives of the Ravenswood/4 Corners TOD Specific Plan (Goal UTIL-3 and subsequent policies). NEXUS METHODOLOGY As new development occurs, it attracts new residents and employees, who, in turn, require new (or expanded and improved) water infrastructure. This relationship between new development, an influx of residents and workers, and an additional demand for water infrastructure provides the nexus for an impact fee. In recognition of this infrastructure need, the City of East Palo Alto included water infrastructure projects in the CIP and DEPLAN to augment water infrastructure in East Palo Alto. The CIP identifies a water supply project of approximately $5.4M. The CIP and DEPLAN include water distribution and water storage totaling approximately $4.8M and $5.0M, respectively. The costs for these water infrastructure projects will be shared across land use types, based on demand and usage. The gross project cost will be divided by capacity (e.g. gallons per day) to arrive at a unit cost. Typical usage rates per land use type will be used to derive an impact fee from the unit costs, where usage for water supply and distribution systems is described in gallons per day, and usage for storage systems is described in land acres. 9 Appendix Table C - 3 includes more detail on the usage and demand calculations and assumptions. Table 12, Table 13, and Table 15 show the impact fee calculation and the maximum supportable impact fees for the components of the water infrastructure impact fee. As noted in Chapter 0, water supply projects benefit the entire city since the additional water reserves will be available to the entire city an impact fee for water supply will be charged citywide. Identified public water supply improvements include upgrades to Gloria Way Well and the development of an additional well, both of which (together) will generate approximately 1.4 million gallons per day for the city as a whole. Therefore, an impact fee for water supply infrastructure should be charged citywide, with new development paying its fair share of the new infrastructure. All other water infrastructure projects distribution pipes from central supply and emergency storage are specific to the RBD, 9 Usage for emergency water storage is described in land acres to denote the relative burden on the storage system. Emergency water is used for firefighting, and therefore city land acreage is a relevant usage proxy. Unlike water distribution systems which have differential usage by building type, emergency water storage is used at the same rate (during firefighting) by all properties, with the only difference being how much area must be covered. 36

223 engineered particularly to support new development in the RBD. Without sufficient water infrastructure, development envisioned under the RBD cannot be approved, as described in the Certified EIR. Therefore, an RBD-specific water infrastructure impact fee (in addition to the citywide water supply fee) is charged within the RBD for water infrastructure (distribution and emergency storage components). Table 12: Impact Fee Nexus Calculation for Water Infrastructure Water Supply (Citywide) * Measure Value Source / Calculation Capacity / Demand A Capacity of new water supply infrastructure (gpd 2 ) 1,455,357 See Note 1 B % of demand on new water supply infrastructure by new development 100% See Note 1 Cost C Total cost for water supply infrastructure $5,400,000 Table 3 D Cost attributable to new service population, with 4% administrative fee $5,616,000 D * B * 1.04 E Unit cost for water supply infrastructure ($ / gpd) $3.86 D / A Residential Unit Conversions F Townhouse (gpd / DU) 260 Appendix Table A - 1 G Multi-Family (gpd / DU) 203 Appendix Table A - 1 Commercial Unit Conversions H Office (gpd / sf) 0.11 Appendix Table A - 1 I R&D (gpd / sf) 0.39 Appendix Table A - 1 J Industrial (gpd / sf) 0.38 Appendix Table A - 1 K Retail (gpd / sf) 0.16 Appendix Table A - 1 Residential Nexus Fee Maximums Townhouse ($ / DU) $1,003 E * F Multi-Family ($ / DU) $784 E * G Non-Residential Nexus Fee Maximums Office ($/SF) $0.44 E * H R&D ($/SF) $1.49 E * I Industrial ($/SF) $1.45 E * J Retail ($/SF) $0.62 E * K Source: AECOM, 2013 Notes: Urban Water Management Plan, Updated April 2013, page 53, Table GPD = gallons per day 37

224 Table 13: Impact Fee Nexus Calculation for Water Infrastructure Impact Fee - Water Distribution (RBD) * Measure Value Source / Calculation Capacity / Demand A Demand for water distribution infrastructure (gpd) in RBD from new development 1,116,968 Appendix Table C - 3 Cost B Total cost for water distribution infrastructure $4,838,327 Table 3 C Unit cost for water distribution infrastructure, with 4% administrative fee ($ / gpd) $4.50 B / A * 1.04 Residential Unit Conversions D Townhouse (gpd / DU) 260 Appendix Table C - 3 E Multi-Family (gpd / DU) 203 Appendix Table C - 3 Commercial Unit Conversions F Office (gpd / sf) 0.11 Appendix Table C - 3 G R&D (gpd / sf) 0.39 Appendix Table C - 3 H Industrial (gpd / sf) 0.38 Appendix Table C - 3 I Retail (gpd / sf) 0.16 Appendix Table C - 3 Residential Nexus Fee Maximums Townhouse ($ / DU) $1,171 C * D Multi-Family ($ / DU) $915 C * E Non-Residential Nexus Fee Maximums Office ($/SF) $0.51 C * F R&D ($/SF) $1.74 C * G Industrial ($/SF) $1.69 C * H Retail ($/SF) $0.72 C * I Source: AECOM,

225 Table 14: Impact Fee Nexus Calculation for Water Infrastructure Impact Fee - Water Storage (RBD) * Measure Value Source / Calculation Capacity / Demand A Water storage tank capacity required for new development in SPA (MG) 2 East Palo Alto Water System Master Plan B Total projected acreage of new development (50-80 yr. planning horizon) 138 Table 2 Cost C Total cost for water storage tank $5,000,000 Table 3 D Per-acre cost for water storage tank (with 4% administrative fee) $37,578 C * 1.04 / B Residential Unit Conversions E Townhouse (total acreage) 10 Table 2 F Townhouse (DU) 204 Table 2 G Multi-Family (total acreage) 23 Table 2 H Multi-Family (DU) 1083 Table 2 Commercial Unit Conversions I Office (total sf) 1,191,947 Table 2 J Office (built sf) 1,568,922 Table 2 K R&D (total sf) 1,281,245 Table 2 L R&D (built sf) 713,622 Table 2 M Industrial (total sf) 1,803,529 Table 2 N Industrial (built sf) 974,764 Table 2 O Retail (total sf) 327,571 Table 2 P Retail (built sf) 131,028 Table 2 Residential Nexus Fee Maximums Townhouse ($ / DU) $1,879 D * E / F Multi-Family ($ / DU) $781 D * G / H Non-Residential Nexus Fee Maximums Office ($/SF) $0.66 D * I / 43,560 / J R&D ($/SF) $1.55 D * K / 43,560 / L Industrial ($/SF) $1.60 D * M / 43,560 / N Retail ($/SF) $2.16 D * O / 43,560 / P Source: AECOM,

226 STORM DRAINAGE PURPOSE Storm drainage is critical infrastructure to prevent flooding of streets during rain events and are a common, City-provided public service. East Palo Alto aims to provide adequate storm drainage for new development in the RBD, as stated in the policy directives of the Ravenswood/4 Corners TOD Specific Plan (Goal UTIL-3 and subsequent policies). NEXUS METHODOLOGY As new development occurs, it attracts new residents and employees, who, in turn, require new (or expanded and improved) storm drainage. This relationship between new development, an influx of residents and workers, and an additional demand for storm drainage provides the nexus for an impact fee. In recognition of this infrastructure need, the City of East Palo Alto included storm drainage projects in the DEPLAN, totaling approximately $15.4M. The costs for these storm drainage infrastructure projects will be shared across land use types, based on demand and usage, for which impervious acres are a proxy. The gross project cost will be divided by impervious acres of new development to arrive at a unit cost. Typical impervious footprints per land use type will be used to derive an impact fee from the unit costs. Appendix Table C - 3 includes more detail on the impervious acres calculations and assumptions. Table 14 show the impact fee calculation and the maximum supportable impact fees for the components of the water infrastructure impact fee. As noted in Chapter 0, storm drainage infrastructure impact fees are charged within the RBD only, as all drainage infrastructure serves new development in the RBD. Therefore, new development within the RBD will support the cost of RBD storm drainage infrastructure with a storm drainage impact fee chargeable only within the RBD. Note that it is the stated intent of the City to require all development to connect to the City storm drainage system. In rare and unique cases, a development may propose the construction of a private and separate storm drainage system as part of the City entitlement process. Approval of a private system may occur, provided: The City Engineer, following the submittal of engineered plans and specifications along with pertinent analyses, has determined that the system is functional and will provide equal or greater protection to property and the general public than connection to the public storm drain system; and Applicant has obtained and provided evidence of the issuance of all necessary regulatory permits from the BCDC, Army Corp Engineers, Fish and Wildlife, and other regulatory agencies, copies of which must be are to be filed with the City Engineer. The conditions of approval shall include the recording of the following language on the title: This property shall drain its storm drain runoff through the outfall system. This property shall not drain into the City 40

227 Storm Drain system. (If, at a future date, the property owner wants to connect to the City storm drain system, the property owner must seek and obtain approval from the City Engineer and pay storm drain impact fees, as determined in the development impact fee program.) The City Engineer may require plans, specifications and analyses of proposed connection. Following issuance of an Engineering Permit, the applicant shall be responsible for construction of connection and abandonment of existing facilities. The conditions of approval shall also include a requirement that the property owner enter into a hold harmless agreement in a form acceptable to the City Attorney. The agreement shall acknowledge that the property owner is responsible for maintaining all structures, conducting regular inspections, submitting inspection reports to the City and maintaining all permits. Further, the property owner is responsible for any and all fines and costs associated with non-compliance with permits or violation of the Clean Water Act. Table 15: Impact Fee Nexus Calculation for Storm Drainage Impact Fee (RBD) * Measure Value Source / Calculation Service Population A Cost Impervious acres (correlated to demand for storm drain infrastructure) in RBD from new development 125 Appendix Table C - 3 B Total cost for storm drain infrastructure in RBD $15,413,372 Table 3 C Unit Cost for storm drain infrastructure, with 4% administrative fee ($ / impervious acre) $128,711 B / A * 1.04 Residential Unit Conversions D Townhouse (impervious acres / DU) 0.05 Appendix Table C - 3 E Multi-Family (impervious acres / DU) 0.02 Appendix Table C - 3 Commercial Unit Conversions F Office (built sf / impervious acre) 63,707 Appendix Table C - 3 G R&D (built sf / impervious acre) 26,159 Appendix Table C - 3 H Industrial (built sf / impervious acre) 26,958 Appendix Table C - 3 I Retail (built sf / impervious acre) 19,360 Appendix Table C - 3 Residential Nexus Fee Maximums Townhouse ($ / DU) $5,792 C * D Multi-Family ($ / DU) $2,407 C * E Non-Residential Nexus Fee Maximums Office ($/SF) $2.02 C / F R&D ($/SF) $4.92 C / G Industrial ($/SF) $4.77 C / H Retail ($/SF) $6.65 C / I Source: AECOM,

228 ROADWAY INFRASTRUCTURE PURPOSE Roadway infrastructure is a common, City-provided public facility. East Palo Alto, like most cities, aims to provide adequate roads for its citizens and workforce for general transportation and safety. The Ravenswood/4 Corners Specific Plan EIR explicitly states the City s goal to provide adequate road infrastructure, and the City s obligation to provide traffic mitigation measures through roadway infrastructure improvements. NEXUS METHODOLOGY As new development occurs, it attracts new residents and employees, who, in turn, require new (or expanded and improved) roadway infrastructure. This relationship between new development, an influx of residents and workers, and an additional demand for roads provides the nexus for an impact fee. In recognition of this infrastructure need, the City of East Palo Alto included roadway infrastructure projects in the CIP and the DEPLAN to augment roads in the RBD. The CIP and the DEPLAN call for street building and paving, construction of the Loop Road, and traffic mitigations as per the EIR, with a gross cost of approximately $43.4M. The costs for these roadway projects will be shared across land use types, based on number of trips. The gross project cost will be divided by the total number of expected trips to arrive at a per-trip cost. Impact fees for residential and non-residential space will be determined by multiplying the per-trip cost by the trip generation rate for a particular land use type. Appendix Table C - 4 includes more detailed information about the number of trips per residential dwelling unit and per non-residential square foot, based on the Institute of Transportation Engineers (ITE) handbook. As noted in Chapter 2, roadway infrastructure impact fees are charged within the RBD only, as all roadway infrastructure serves new development in the RBD. Projects within the RBD are required to accommodate the projected traffic volumes from new development in the RBD. Therefore, new development within the RBD will support the cost of RBD road infrastructure with a roadway impact fee chargeable only within the RBD. Note that the nexus fee can be modified per development, if a development-specific traffic impact study demonstrates a different trip generation rate. In this case, the nexus fee is calculated as the per-trip unit cost for roadway improvements multiplied by the trip generation rate for the particular development. In the absence of a traffic impact study, the nexus fee will apply. Table 16 shows the impact fee calculation and the maximum supportable impact fees for roadway infrastructure in the RBD. 42

229 Table 16: Impact Fee Nexus Calculation for Roadway Infrastructure Impact Fee (RBD) * Measure Value Source / Calculation Capacity / Demand A Gross number of trips in RBD 21,902 Appendix Table C - 4 Cost B Total cost for roadway improvements / street structure in RBD $43,378,927 Table 3 C Unit cost for roadway improvements, with 4% administrative fee ($ / trip) $2, B / A * 1.04 Residential Unit Conversions E Townhouse (trips / DU) 5.81 Appendix Table C - 4 F Multi-Family (trips / DU) 6.65 Appendix Table C - 4 Commercial Unit Conversions G Office (trips / Ksf) Appendix Table C - 4 H R&D (trips / Ksf) Appendix Table C - 4 I Industrial (trips / Ksf) Appendix Table C - 4 Residential Nexus Fee Maximums Townhouse ($ / DU) $11,967 C * E Multi-Family ($ / DU) $13,698 C * F Non-Residential Nexus Fee Maximums Office ($/SF) $22.68 C * G / 1000 R&D ($/SF) $14.36 C* H / 1000 Industrial ($/SF) $16.71 C * I / 1000 Source: AECOM, 2013 Note: 1. Ksf is 1,000 square feet. 43

230 STREETSCAPE INFRASTRUCTURE PURPOSE Streetscape infrastructure encompasses a wide range of right-of-way facilities that play an important role in the City s creation of public realm and non-motorized transportation. Constructing sidewalks with street trees, street lighting, benches, and street furniture, impacts safety, sidewalk space as social space, pedestrian aesthetic, and active transportation. The Land Use Element of East Palo Alto s General Plan explicitly states an objective to strengthen the condition of streetscape and public areas with landscaping, signs, benches, and street lighting to produce a sense of place and community in public streetscape. East Palo Alto aims to provide adequate streetscape for its citizens and workforce. NEXUS METHODOLOGY As new development occurs, it attracts new residents and employees, who, in turn, require new (or expanded and improved) streetscape infrastructure. This relationship between new development, an influx of residents and workers, and an additional demand for streetscape infrastructure provides the nexus for an impact fee. In recognition of this infrastructure need, the City of East Palo Alto included streetscape infrastructure projects in the DEPLAN to augment sidewalks in the RBD. The DEPLAN sidewalk paving, street tree planting, sidewalk lighting installations, and street furniture, with a gross cost of approximately $4.6 million. The costs for these roadway projects will be shared across the service population within the RBD, since both residents and employees use sidewalk facilities to walk, commute, and travel. As noted in Chapter 0, streetscape infrastructure impact fees are charged within the RBD only, as all streetscape infrastructure in the RBD is a local amenity that serves new development in the RBD. Dividing the gross cost by the growth in service population within the RBD yields a per-person cost. Impact fees are calculated by multiplying the per-person cost by residential and non-residential densities. Table 17 shows the impact fee calculation and the maximum supportable impact fees for streetscape infrastructure in the RBD. 44

231 Table 17: Fee Calculation for Maximum Supportable Streetscape Infrastructure Impact Fee * Measure Value Source / Calculation Service Population A Total new service population in RBD ( ) 5,192 Table 1 Cost B Total cost for streetscape infrastructure in RBD $4,427,134 Table 3 C Unit cost for streetscape infrastructure, with 4% administrative fee ($ / service population) $887 B / A * 1.04 Residential Unit Conversions D Townhouse (service population / DU) 3.9 Appendix Table A - 1 E Multi-Family (service population / DU) 3.2 Appendix Table A - 1 Commercial Unit Conversions F Office (square footage / service population) 520 Appendix Table A - 1 G R&D (square footage / service population) 1220 Appendix Table A - 1 H Industrial (square footage / service population) 1820 Appendix Table A - 1 Residential Nexus Fee Maximums Townhouse ($ / DU) $3,457 C * D Multi-Family ($ / DU) $2,859 C * E Non-Residential Nexus Fee Maximums Office ($/SF) $1.71 C / F R&D ($/SF) $0.73 C / G Industrial ($/SF) $0.49 C / H Source: AECOM,

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233 5. Additional Funding Sources and City Contributions The section will consider the City s share of infrastructure costs and the impacts of committed funds already allocated to particular infrastructure projects. REQUIRED CITY CONTRIBUTION The nexus analysis derives the maximum supportable development impact fees that may be charged based on development s identified impact on future infrastructure needs. In some cases, new development is responsible for the entire cost of new infrastructure (i.e. roadway improvements and streetscape); in other cases, new development is responsible for a proportional share of new infrastructure (i.e. parks and trails, community facilities, and water infrastructure). In the latter case, where development s fair share is a portion of the cost of new infrastructure, East Palo Alto s current service population is responsible for the remaining share. The City must furnish the cost of the existing service population s fair share. Table 18 shows the infrastructure cost, development s fair share (i.e. the estimated impact fee revenue) and the existing service population s fair share (i.e. the required City contribution). Table 18: Share of Infrastructure Costs Borne by New Development and the City of East Palo Alto Infrastructure Item Project Cost Estimated Maximum Impact Fee Revenue Required City Contribution 1 Parks & Trails $51,027,000 $4,712,000 $48,168,000 Community Facilities $41,815,000 $9,919,000 $33,172,000 Water Infrastructure - Water Supply $5,400,000 $3,725,600 $1,741,000 Water Infrastructure - Other (Distribution) $4,838,000 $5,018,000 $0 Water Infrastructure - Other (Storage) $5,000,000 $5,200,000 $0 Storm Drainage $15,413,000 $16,030,000 $0 Road Infrastructure $43,379,000 $45,114,000 $0 Streetscape $4,427,000 $4,753,000 $0 Source: East Palo Alto, AECOM, 2013 Notes: All values are rounded to the nearest thousand. 1. The required City s contribution represents the difference between the project cost and the estimated maximum impact fee revenue. Note that in some cases there are some discrepancies due to rounding; as a result some of the required City contributions are reported as $0. The Impact Fee Revenue includes the 4% administrative fee, which also accounts for some of the discrepancy between the project cost and the impact fee revenue, where the latter is greater than the former. 47

234 COMMITTED CITY FUNDS The City of East Palo Alto has some monies already allocated to various infrastructure projects. These committed funds come from a variety of sources, including grants and federal funding. Table 19 outlines the existing committed funds; more detailed information is included in Appendix F: Committed Funding Details. Table 19: Committed Funding Amounts and Sources for Infrastructure Projects Infrastructure Item Project Cost Estimated Maximum Impact Fee Revenue Required City Contribution 1 Committed Funds Source of Committed Funds Parks & Trails $51,027,000 $4,712,000 $48,168,000 $5,042,000 Proposition 84 Community Facilities $41,815,000 $9,919,000 $33,172,000 $0 N/A Water Infrastructure $15,238,000 $13,943,600 $1,741,000 $1,633,000 (As below) Water Infrastructure - Water Supply $5,400,000 $3,725,600 $1,741,000 $1,008,000 STAG 3 funds Water Infrastructure - Other (Distribution) $4,838,000 $5,018,000 $0 $625,000 Water Infrastructure - Other (Storage) $5,000,000 $5,200,000 $0 $0 N/A Storm Drainage $15,413,000 $16,030,000 $0 $3,925,000 Road Infrastructure $43,379,000 $45,114,000 $0 $7,500,000 Streetscape $4,427,000 $4,753,000 $0 $2,500,000 Impact fees from DKB housing STAG 3 funds One Bay Area grant (OBAG) Federal Transportation Earmark grant 2 HUD EDI Grant 4 Federal Transportation Earmark grant 2 Federal Transportation Earmark grant 2 Source: AECOM, City of East Palo Alto, 2013 Notes: All values are rounded to the nearest thousand. 1. The required City s contribution represents the difference between the project cost and the estimated maximum impact fee revenue. Note that in some cases there is some rounding error, although the required City s contribution is reported as $0. 2. The Federal Transportation Earmark grant stipulates that federal money constitute 80 percent of the funding amount, and the local entity (City of East Palo Alto in this case) provide the remaining 20 percent of funds. 3. State Tribal Assistance Grant 4. U.S. Department of Housing and Urban Development (HUD) Economic Development Initiative (EDI) Grant The development impact fees calculated in Chapter 4 (Detailed Impact Fee Calculations) represent the maximum supportable fee burden that could be charged to new development for which there is a reasonable nexus and proportional relationship. Where committed funds exist for a particular infrastructure category in an amount above the City s required contribution, the City can omit a portion of development s burden. The excess committed fund monies i.e. those above the City s fair share can be used to discount development s fair share, reducing development impact fees. Given the required City contributions and committed fund amounts in Table 19, this report recommends that the City adopt discounted impact fees for storm drainage, roadway infrastructure, and streetscape infrastructure. The discounted fees (Table 20) are calculated using the same methodology as outlined in Chapter 4 (Detailed Impact Fee Calculations), except that the project costs are reduced by the amount of the excess committed funds. That is, the fee discount is distributed evenly across all land uses. Note that, alternatively, the City could choose to distribute the fee discount unevenly across land uses, for example, 48

235 using the excess monies to reduce the fees for non-residential uses only. This type of preferential fee discounting would incentivize certain development types over others. Table 20: Discounted Impact Fees, Accounting for Committed Fund Monies Development Impact Fee Town House (per DU) Multi-Family (per DU) Office (psf) R&D (psf) Industrial (psf) Retail (psf) Storm Drainage Discounted RBD-specific fee $4,317 $1,794 $1.51 $3.67 $3.56 $4.96 Maximum supportable RBD-specific fee $5,792 $2,407 $2.02 $4.92 $4.77 $6.65 Roadway Infrastructure Discounted RBD-specific fee $9,898 $11,329 $18.76 $13.82 $11.87 TBA Maximum supportable RBD-specific fee $11,967 $13,698 $22.68 $14.36 $16.71 TBA Streetscape Discounted RBD-specific fee $1,505 $1,245 $0.74 $0.32 $0.21 TBA Maximum supportable RBD-specific fee $3,457 $2,859 $1.71 $0.73 $0.49 TBA Source: AECOM, 2013 Notes: To calculate discounted fees, the same methodology as described in Chapter 4 is used, except that the infrastructure cost is reduced by the amount of the committed funds. Committed funds within the water infrastructure category are assumed to be fluid to some extent among the various components of the water infrastructure category (water supply, water distribution, storm drainage, and storage). That is, the funds from the OBAG grant and the local impact fees from DKB homes are assumed to be flexible in their allocation within the water infrastructure category. The fee discount comes from the reduction on storm drainage infrastructure cost derived from the committed fund allocation for storm drainage projects (less the OBAG). ESTIMATED OTHER FUNDS For both parks and trails infrastructure and community facilities, the City has not yet fully identified all funding sources to furnish their proportional share. Some funding sources have been identified, as noted in Table 21. For parks and trails infrastructure, some funds will come from Quimby Act fees; for community facilities, the City estimates that it will be able to raise funds to cover approximately 50 percent of the cost for the library project, 20 percent of the cost for community center projects, and zero percent of the cost for other community facility project. 49

236 Table 21: Estimated Other Funds to Cover Remaining City Contribution Requirement Outstanding City Estimated Contribution Maximum Committe Estimated Source of Estimated Other TYPE Project Cost Requirement (incl. Impact Fee d Funds Other Funds Funds 4% administrative Revenue fee) A B C D E = A (B + C + D) Parks and Trails $51,027,000 $4,694,000 $5,042,000 $12,115,000 $31,029,361 Estimate of Quimby Act fee revenue 1 Community Facilities $41,815,000 $9,919,000 $0 $4,247,000 $28,825,000 See details below. Community Facilities Master Plan Community Development Building 2277 University Avenue Building $100,000 n/a n/a $0 $0 No source of other funds $90,000 n/a n/a $0 $0 No source of other funds $10,000 n/a n/a $0 $0 No source of other funds Senior Center Building $30,000 n/a n/a $0 $0 No source of other funds Police Department Building Corporation Yard Building $10,000,000 n/a n/a $0 $0 No source of other funds $100,000 n/a n/a $0 $0 No source of other funds New City Hall $15,000,000 n/a n/a $0 $0 No source of other funds Media Center $15,000 n/a n/a $0 $0 No source of other funds Improvement City estimated ability to raise Purdue Recreation Center $4,320,000 n/a n/a $864,000 n/a funds for 20% of cost 4 Corners Community City estimated ability to raise $8,640,000 n/a n/a $1,728,000 n/a Center funds for 20% of cost City estimated ability to raise Library $3,510,000 n/a n/a $1,755,000 n/a funds for 50% of cost Source: AECOM, City of East Palo Alto, 2013 Notes: Project costs for individual community facilities do not include the 4% administrative fee. The administrative fee is added to the total cost. 1. Quimby Act fees represent the burden on new residential development to fund parks and trails infrastructure. The Quimby Act fee revenue is estimated as the difference between new developments share of parks and trails infrastructure ($16,809,000 as per Table 10) and the share of parks and trails infrastructure paid for by non-residential development ($4,694,000 as per Table 20). This assumes that impact fees cover new non-residential development s share of parks and trails infrastructure and Quimby fees cover new residential development s share. This assumption is conservative, given the estimated Quimby Act fee of $8,210 per DU, and the anticipation of 2,371 new DU citywide. Table 22 shows the percentage of the required contribution for which the City has identified funding. The remaining funding requirements have yet to be identified. As such, the City will discount the development impact fees proportionally. The City will reduce the maximum supportable development impact fees to the same proportion as the City s identified funding relative to the City s fair share contribution requirement. Because the City can only feasibly provide 37 percent of its share for Parks and Trails and 13 percent of its share for Community Facilities, the development impact fees for Parks and Trails and Community Facilities are reduced to 37 percent and 13 percent, respectively, of the maximum supportable fees. Table 22 shows the reduced development impact fees. These fees and allocations will be re-evaluated in the development fee update (mandated every five years). Should the City identify additional funds to contribute to Parks and Trails and/or Community Facilities, the City could increase development fees accordingly to account for its proportionate share of total infrastructure costs. 50

237 Table 22: Feasible City Contribution to Parks and Trails and Community Facilities Infrastructure TYPE City Contribution Requirement 1 Feasible City Contribution (Committed and Estimated Funds) 2 Percent of Requirement Contribution Provided by City 3 Parks and Trails $48,186,000 $17,156,639 37% Community Facilities $28,825,000 $4,347,000 13% Notes: 1. The City Contribution Requirement is the difference between the total cost (including the administrative margin) and the estimated impact fee revenue. 2. Feasible City Contribution is the sum of committed funds and estimated funds. In the case of Parks and Trails, the sum represents Proposition 84 funds and Quimby Act fee revenue estimates. In the case of Community Facilities, the sum represents the estimated funds, as outlined in Table The Percent of Required Contribution Provided by City is the Feasible City Contribution divided by the City Contribution Requirement. Table 23: Reduced Impact Fees for Parks and Trails and Community Facilities Development Impact Fee Town House (per DU) Multi-Family (per DU) Office (psf) R&D (psf) Industrial (psf) Retail (psf) Parks and Trails 1 Discounted fee (citywide) n/a n/a $0.87 $0.37 $0.25 $0.51 Maximum supportable fee (citywide) n/a n/a $2.35 $1.00 $0.67 $1.39 Community Facilities 2 Discounted fee (citywide) $510 $422 $0.25 $0.11 $0.07 $0.15 Maximum supportable fee (citywide) $4,386 $3,628 $2.16 $0.92 $0.62 $1.28 Notes: 1. The maximum supportable parks and trails fees discounted by 37%, to reflect the percentage of identified City funding to date. 2. The maximum supportable community fees discounted by 13%, to reflect the percentage of identified City funding to date. 51

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239 6. Administration and Implementation There are several implementation and administration issues related to the nexus study and impact fees, including administrative activities and costs, annual escalation factors, credits and reimbursements, and potential deferral for economic or policy reasons. These administrative items are discussed in this chapter. ANNUAL ESCALATION/PERIODIC UPDATES The construction costs used to calculate infrastructure project costs (Table 3) are in 2013 dollars, but every year, construction costs have generally increased (i.e. on average construction costs have increased by 7.1 percent from 2010 to 2013 Turner Building Cost Index). To account for this construction cost inflation, impact fees must be adjusted commensurately each year. As an escalation mechanism, impact fees will be increased each year by the change in the San Francisco Construction Cost Index (CCI) as reported in the Engineering News Record. The Nexus Study must be updated approximately every 5 years to account for changes in the project list, the scope of projects, other funding sources, demographics, and land use. Citywide impact fees will likely be significantly updated upon completion of the 2013 General Plan Update. The cost for regular updates is encapsulated in the 4 percent administrative cost added to each project. SPECIALIZED DEVELOPMENT PROJECTS Some specialized development projects may not fit within the land uses identified in this nexus study. Furthermore, some of the land uses might have significantly different impacts than the traditional land uses considered as part of this study. For example, the nexus study assumes an employment density for office space of one employee per 250 square feet of building space. However, social media firms often utilize a higher employment density of one employee for every 150 square feet of building space. The higher employee density might have additional impacts that warrant a specialized analysis. Another example might be a building that generates a very different number of trips, based on an individualized traffic impact assessment, than the standard assumed in the nexus study based on the ITE manual. The 53

240 City reserves the right to review land uses that have impacts that are different from industry standards relied upon in this nexus study and determine an applicable ad hoc fee via a Development Agreement. ONGOING ADMINISTRATION The Government Code requires the City to report every year and every fifth year certain financial information regarding the fees. The City must make the following information from the previous fiscal year available within 180 days after the last day of that fiscal year. A brief description of the type of fee in the account or fund; The amount of the fee; The beginning and ending balance in the account or fund; The amount of the fee collected and the interest earned; An identification of each public improvement for which fees were expended and the amount of the expenditures; A description of each inter-fund transfer or loan made from the account and when it will be repaid; and Identification of any refunds made once it is determined that sufficient monies have been collected to fund all fee-related projects. The City must make this information available for public review and present it at the next regularly scheduled public meeting not less than 15 days after this information is made available to the public. For the fifth year following the first deposit into the account or fund, and every five years thereafter, the City must make the following findings with respect to any remaining funds in the fee account, regardless of whether those funds are committed or uncommitted. The purpose to which the fee is allocated; A reasonable relationship between the fee and the purpose for which it is charged; All sources and amounts of funding anticipated to fill any financing shortfalls; The approximate dates on which funding is expected to be deposited into the fee account. The five-year report must be made public within 180 days after the end of the City s fiscal year, and must be reviewed at the next regularly scheduled public meeting. If the City does not disclose these findings, the law may require that the City refund the money, on a prorated basis, to the then currentrecord owners of the development project. FEE CREDITS OR REIMBURSEMENTS The City may provide fee credits to developers who dedicate land or construct facilities. Fee credits may be provided up to the planned cost of the improvement cited in the improvement plan, subject to 54

241 periodic inflation adjustments or the actual cost paid by the developer, whichever is lower. Prior to approving a credit for work constructed by the developer, the City Engineer shall approve the plans to ensure consistency with the City s engineering, design, and planning standards. For construction cost overruns, only that amount shown in the applicable improvement plan, subject to periodic inflation adjustments, should be credited. The City will evaluate the appropriate fee credit or reimbursement based on the value of the dedication or improvement. Fee credits will be determined by the City on a case-by-case basis and through a development agreement. IMPACT FEE DEFERRAL OR WAIVER The City might find it advantageous to defer or waive fees for economic or policy reasons. Typically, impact fees are paid prior to receiving the building permit, which represents a significant expense in the project prior to the project generating revenue. Cities occasionally allow developers to defer payment of the impact fees until prior to the Certificate of Occupancy, when the project is more likely to be generating revenue. This nexus study recommends mandating payment at time of building permit, which is the norm, but reserving the right to defer the fees in special circumstances. Cities also occasionally waive specific impact fees, particularly during times of economic downturn, as a development incentive. The fees could be waived for a building size target (e.g. fee waiver for the first 500,000 square feet), or for a certain building valuation, based on building permits (e.g. fee waiver for the first $20 million of permit valuation). This nexus study recommends mandating payment, but reserving the right to waive fees in special circumstances. Typically, deferred or waived fees are fees for quality of life infrastructure (such as parks and streetscape), and not backbone infrastructure (such as storm drains and water supply). Note also that the City cannot waive or defer the EIR traffic mitigations a subset of the roadway infrastructure projects. EIR traffic mitigation projects represent approximately 5 percent of the cost for all roadway infrastructure projects (refer to Roadway Infrastructure Requirements in Appendix B: Detailed Project List). Any potential roadway impact fee waiver may not waive the 5 percent for EIR traffic mitigation: Specific Plan Policy TRA-2.5 states that the City shall prepare a nexus study for traffic mitigation in the Specific Plan/Program EIR. The impact fee is necessary to mitigate traffic impacts, and waiving the fee for EIR traffic mitigations would require amending the certified Program EIR. 55

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243 Appendix A: ASSUMPTIONS UNDERLYING DEMOGRAPHIC INFORMATION Appendix Table A - 1: Population and Employment Density Assumptions * Measure Value Source / Comments A Townhouse (persons / DU) 3.9 B Multi-Family (persons / DU) 3.2 As above (A) C SF / unit (Townhouse) 1,000 City of East Palo Alto D SF / unit (Multi-Family) 875 City of East Palo Alto Calculated given that the new population in the RBD (2766) must equal the townhouse density multiplied by the number of townhouse DU plus the multi-family density multiplied by the number of multi-family DU i.e. Solve 2766 = (TH density) * 19 + (MF density) * 835 E Resident per service population 1 Standard weight for resident in service population calculation F Service population / unit (Townhouse) 3.9 E * A G Service population / unit (Multi-Family) 3.2 E * B H SF / employee (Office) 260 Calculated given that the new employment projections must equal the commercial density multiplied by commercial square footage i.e = (office density) * 1,653,150 + (R&D density) * 156,495 + (industrial density) * 240,349 + (retail density) * I SF / employee (R&D) 610 As above (H) J SF / employee (Industrial) 910 As above (H) K SF / employee (Retail) 440 As above (H) L Employee per service population unit 0.5 Standard weight for employee in service population calculation M SF / service population unit (Office) 520 L * H N SF / service population unit (R&D) 1220 L * I O SF / service population unit (Industrial) 1820 L * J P SF / service population unit (Retail) 880 L * K 57

244 Appendix Table A - 2: Assumptions for Population, Employment, and Service Population Projections ( ) * Measure Value Source / Comments A East Palo Alto Population (2010) 28,273 American Community Survey (ACS) year Estimate for East Palo Alto B East Palo Alto Population Growth ( ) 9,875 See table below (Appendix Table A - 3) C RBD Population Growth ( ) 2,766 See table below (Appendix Table A - 3) D Non-RBD Population Growth 7,109 See table below (Appendix Table A - 3) E East Palo Alto Employment (2010) 2,915 OnTheMap.com, 2011 F East Palo Alto Employment Growth ( ) 7,814 See table below (Appendix Table A - 3) G RBD Employment Growth ( ) 4,851 See table below (Appendix Table A - 3) H Non-RBD Employment Growth ( ) 2,963 See table below (Appendix Table A - 3) I East Palo Alto Service Population (2035) 43,513 J East Palo Alto Service Population Growth ( ) 13,782 B * 1 + F * 0.5 K RBD Service Population Growth ( ) 5,192 C * 1 + G * 0.5 L Non-RBD Service Population Growth ( ) 8,591 J - K Standard service population calculation: (A + B ) * 1 + ( E + F ) * 0.5 Appendix Table A - 3: Housing, Population, and Employment Projection Calculations Revised Growth Assumptions ( ) Proposed Plan at Buildout (RBD) No Project Alternative at Buildout (RBD) New Growth From Proposed Plan (RBD) ABAG-Projected Growth in East Palo Alto (City) Revised Growth in East Palo Alto with Proposed Plan (City) Rest of City Growth Assumptions (Rest of City) * [A] [B] [C] (A-B) [D] [E] (C+D) [F] (F-A) Housing Units Population Employees Sources: Ravenswood/4 Corners TOD Specific Plan EIR Table 5-1 Comparison of Buildout Figures ; ABAG 2009 Citywide estimates Notes: ABAG 2009 projections for East Palo Alto are based on planning information provided in As such, the 2035 ABAG projections for population, housing, and employment in East Palo Alto do not account for zoning changes in the RBD made in 2012 and therefore underestimate population, housing, and employment growth, based on East Palo Alto s current long-range planning. Using the build-out and no project alternative projections from the Ravenswood/4 Corners TOD Specific Plan EIR, ABAG projections can be updated to reflect the planned growth. Columns A, E, and F represent housing, population and job growth from 2010 through 2035 in the RBD, East Palo Alto, and the remainder of the city, respectively. 58

245 APPENDIX B: DETAILED PROJECT LIST Appendix Table B - 1: Detailed Project List TYPE Reference Document Description Gross Project Cost Parks and Trails Martin Luther King Jr. Park Improvements CIP PK-07 $450,000 Joel Davis Park Improvements CIP PK-08 $260,000 Park/Trail Adjacent to San Francisquito Creek CIP PK-10 $3,250,000 Jack Farrell Park Improvements CIP PK-11 $220,000 Baylands Park CIP PK-12 $4,368,000 Bell Street Park Improvements CIP PK-13 $430,000 #1. Fordham Road - Improvements RSP #1, Fig 4-2 $1,201,500 #2. Purdue Avenue - Trail Improvements RSP #2, Fig 4-2 $176,175 #3. Trail Gap Closures RSP #3, Fig 4-2 $1,058,400 #4. Hetch Hetchy ROW Trail RSP #4, Fig 4-2 $338,877 #5. Bay Trail Con. Boardwalk (Spur Trail to Ravenswood Pres) RSP #5, Fig 4-2 $2,970,000 #7. UP Rail Spur Trail Demeter to Bay Rd. RSP #7, Fig 4-2 $1,282,500 #8. Bay Trail (Weeks to Bay Rd.) RSP #8, Fig 4-2 $486,000 #10. UP Spur Trail- Pulgas Ave. to Bay levee RSP #10, Fig 4-2 $843,750 #11. Purdue Avenue Pedestrian Paseo RSP #11, Fig 4-2 $1,130,625 #12. View Corridor Trail RSP #12, Fig 4-2 $826,200 #13. Trail Along Romic (between Purdue and Bay) RSP #13, Fig 4-2 $1,012,500 #14. Hetch Hetchy ROW Park RSP #14, Fig 4-2 $3,071,250 #15. Bay Road Park RSP #15, Fig 4-2 $10,530,000 #16. Bay & Univ. NE Corner RSP #16, Fig 4-2 $211,702 #17. End of Weeks RSP #17, Fig 4-2 $1,499,553 #18. Purdue Park RSP #18, Fig 4-2 $3,577,500 4 Corners Plaza RSP #1, Fig 4-2 $3,213,000 #19. Purdue Pedestrian Paseo RSP #19, Fig 4-2 $1,005,583 #20. TBD small Park RSP #20, Fig 4-2 $540,000 #21. TBD small Plaza RSP #21, Fig 4-2 $324,000 #22. Cooley Landing RSP #22, Fig 4-2 $6,750,000 Community Facilities Community Facilities Master Plan CIP FA-01 $100,000 Community Development Building CIP FA-02 $90, University Avenue Building CIP FA-03 $10,000 Senior Center Building CIP FA-04 $30,000 Police Department Building CIP FA-05 $10,000,000 Corporation Yard Building CIP FA-06 $100,000 59

246 TYPE Reference Document Description Gross Project Cost New City Hall CIP FA-07 $15,000,000 Media Center Improvement CIP - $15,000 Purdue Recreation Center RSP Fig 4-1, p47-48 $4,320,000 4 Corners Community Center RSP Fig 4-1, p47-48 $8,640,000 Library RSP Fig 4-1, p47-48 $3,510,000 Water Infrastructure Water Supply Infrastructure CIP Gloria Well Assessment/Rehabilitation $2,000,000 Water Supply Infrastructure CIP 2nd Groundwater Well $3,400,000 Water Distribution Infrastructure DEPLAN Network of water pipes in RBD $4,838,327 Storm Drainage Infrastructure DEPLAN Storm drainage pipes in RBD $15,413,372 Sanitary Sewer Infrastructure DEPLAN Sanitary sewer pipes and other sanitary service improvements in RBD $3,441,624 Water Storage Infrastructure CIP 2 million gallon tank for (emergency) water storage $5,000,000 Roadway Infrastructure Requirements Roadway improvements as per DEPLAN and RSP DEPLAN Building street structure work in RBD $18,931,655 Loop Road RSP/DEPLAN Construction of arterial road in RBD $22,346,672 EIR Traffic Mitigations RSP/DEPLAN Intersection traffic mitigations required by EIR $2,100,600 Streetscape Elements Streetscape improvements DEPLAN Pedestrian, aesthetic, and safety improvements $4,427,134 Source: City of East Palo Alto Note: Estimated other funding includes Quimby Act fee estimates for Parks and Trails infrastructure. 60

247 APPENDIX C: DEVELOPMENT PROJECTIONS Appendix Table C - 1: Land Use Assumptions for 25-Year and Year Planning Horizons 25-year planning horizon RBD 1 East Palo Alto (entire city) RBD Acreage Number Density (DUA) Acreage Number 2 Density (DUA) 2 Townhouses n/a n/a n/a Multi-Family Housing n/a n/a Land SF Built SF FAR Land SF Built SF 3 FAR Office 900,930 1,249, n/a 1,653,150 n/a Industrial 432, , n/a 240,349 n/a R&D 216, , n/a 156,496 n/a Retail 0 0 n/a n/a 353,317 n/a year planning horizon RBD East Palo Alto (entire city) Acreage Number Density (DUA) Acreage Number Density (DUA) Townhouses n/a n/a n/a Multi-Family Housing 23 1, n/a n/a n/a Land SF Built SF FAR Land SF Built SF FAR Office 1,191,947 1,568, n/a n/a n/a Industrial 1,803, , n/a n/a n/a R&D 1,281, , n/a n/a n/a Retail 327, , n/a n/a n/a Sources: AECOM, City of East Palo Alto, Ravenswood/4 Corners TOD Specific Plan EIR Notes: 1. All RBD values for acreage, land square footage, built square footage, number of dwelling units, density, and floor-area-ratio provided by the City of East Palo Alto 2. Number of housing units in East Palo Alto (entire city) taken from AECOM s Task 1 memorandum (Task 1: Growth Assumptions and Benchmark Case Studies). All housing units outside of RBD are assumed to be townhouses with a density of 40 DUA. 3. Values for built square footage in East Palo Alto are taken from the Ravenswood/4 Corners TOD Specific Plan EIR. Industrial and R&D square footages for the entire city are assumed to be the RBD square footage plus half the balance of the combination Industrial / R&D square footage Appendix Table C - 2: Impervious Factor for Storm Drainage Calculations * Value Source Impervious Factor 0.9 Impervious factor provided by City of East Palo Alto 61

248 Appendix Table C - 3: Water Demand Assumptions for Water, Storm Drainage, and Sanitary Sewer (50-80 Year Planning Horizon) Residential Acres 1 Impervious Acres 2 Number of DU 1 Demand (gpd / DU) 3 Total Demand (gpd) 4 Percent of Demand 5 Sanitary % 6 Townhouses ,936 5% 92% Multi-Family Housing , ,948 20% 90% Non-Residential Land SF 1 Impervious Acres 2 Built SF 1 Demand (gpd / sf) 3 Total Demand (gpd) 4 Percent of Demand 5 Sanitary % 6 Office 1,191, ,568, ,687 16% 84% Industrial 1,803, , ,770 34% 87% R&D 1,281, , ,661 24% 87% Retail 327, , ,965 2% 90% Sources: AECOM, City of East Palo Alto Notes: 1.Values for acres, land square footage, built square footages, and number of dwelling units is taken from Appendix Table C Impervious acres for residential units are calculated as the number of acres multiplied by the impervious factor; impervious acres for non-residential units are calculated as the land square footage divided by 43,560 (to convert to acres), multiplied by the impervious factor. 3. Water demand is provided by the City of East Palo Alto 4. Total demand for residential is calculated as the number of dwelling units multiplied by demand; total demand for non-residential is calculated as the built square footage multiplied by demand. 5. Percent of demand is calculated as the total demand for a particular land use over the sum of total demand for all land use types. 6. Sanitary demand percentage is provided by the City of East Palo Alto. Note that sanitary demand is typically taken as a percentage of water demand. Appendix Table C - 4: RBD Trip Totals and Generation Rates (25-Year Planning Horizon) Residential ITE Code 1 DU 2 Trips Per Unit 1 Total Trips 3 Townhouses Multi-Family Housing Non-Residential ITE Code 1 Built SF 2 Trips Per 1000 SF 1 Total Trips 3 Office 710 1,249, Industrial , R&D , Sources: AECOM, City of East Palo Alto Notes: 1. ITE codes and trip generation rates are provided by the City of East Palo Alto. 2. Dwelling unit and built square footage numbers are taken from Appendix Table C Total trips is calculated as the number of dwelling units multiplied by the trip generation rate. 62

249 APPENDIX D: NON-IMPACT FEE ESTIMATE DETERMINATIONS Appendix Table D - 1: Calculations and Assumptions for Quimby Act Fee Estimate Quimby Act Calculation Assumptions Source A Average Persons Per Household 3.59 US Census B Acreage Mandate 3 acres / 1000 persons Ordinance 145 C Amount of Land Required (sf / DU) 469 A * B * D Land Costs PSF $35 City of East Palo Alto 1 E Land Costs Per Unit $16,420 C * D F 50% Credit For Private Open Space ($8.210) E * -0.5 G Net Quimby Act Per Unit $8,210 E - F Note: Quimby Act fee estimate assumptions provided by the City of East Palo Alto, Land cost based on the Ravenswood Specific Plan Fiscal Impact Analysis (Table 10-2), but modified to account for land value increase since the analysis was concluded. Appendix Table D - 2: Calculations and Assumptions for Affordable Housing In-Lieu Fee Estimate Affordable Housing Calculation Assumptions Source A SF / unit (Townhouse) 1,000 Given by City of East Palo Alto B SF / unit (Multi-Family) 875 Given by City of East Palo Alto C Affordable Housing In-Lieu Unit Fee ($ / sf) 23 Given by City of East Palo Alto D Affordable Housing In-Lieu Fee (Townhouse) $23,000 A * C E Affordable Housing In-Lieu Fee (Multi-Family) $18,975 See Note # 1 Notes: 1. $18,975 was given as Affordable Housing In-Lieu fee estimate by the City of East Palo Alto. This value assumes a per square foot cost of $

250 Appendix Table D - 3: Calculations and Assumptions for Sanitary Sewer Fee Estimate * Measure Value Source / Calculation Capacity / Demand A Cost Demand for sanitary sewer infrastructure in RBD from new development (gpd) B Total cost for sanitary sewer infrastructure $3,441,624 Table 3 C Unit cost for sanitary sewer infrastructure, with 4% administrative fee ($ / gpd) Residential Unit Conversions 976,275 Calculated from Appendix Table C - 3 (see Note # 1) $3.67 B / A * 1.04 D Townhouse (gpd / DU) 239 Calculated from Appendix Table C - 3 (see Note # 2) E Multi-Family (gpd / DU) 183 Calculated from Appendix Table C - 3 (see Note # 2) Commercial Unit Conversions F Office (gpd / sf) 0.10 Calculated from Appendix Table C - 3 (see Note # 2) G R&D (gpd / sf) 0.34 Calculated from Appendix Table C - 3 (see Note # 2) H Industrial (gpd / sf) 0.33 Calculated from Appendix Table C - 3 (see Note # 2) I Retail (gpd / sf) 0.14 Calculated from Appendix Table C - 3 (see Note # 2) Residential Nexus Fee Maximums Townhouse ($ / DU) $877 C * D Multi-Family ($ / DU) $670 C * E Non-Residential Nexus Fee Maximums Office ($/SF) $0.35 C * F R&D ($/SF) $1.23 C * G Industrial ($/SF) $1.20 C * H Retail ($/SF) $0.53 C * I Notes: 1. Calculated from the data in Appendix Table C - 3 as the sum of total water demand (gpd) multiplied by the sanitary percent 2. Calculated from the data in Appendix Table C - 3 as the water demand (gpd / DU, or gpd / sf) multiplied by the sanitary percent 64

251 APPENDIX E: PER-PROJECT ASSESSMENT OF IMPACT FEES Calculating the fees (impact fees and other fees) per project basis is important for the assessing the feasibility of development, and for understanding the proportionate share of each fee category. The following appendix will outline prototypical projects per land use type, approximate per-project fees, and consider the fee proportions by fee type, focusing on development projects in the RBD. PROTOTYPICAL DEVELOPMENTS Development prototypes for residential and non-residential space assume single-acre developments, with the densities and FARs from the 25-year planning horizon (Table 2). 10 DEVELOPMENT FEES (IMPACT AND OTHERWISE) Appendix Table E - 1 below shows all fees to which a development in East Palo Alto would be subject. Note that a development in the RBD will be subject to RBD-specific fees, as well as citywide fees. A development not in the RBD would be subject only to citywide fees. Because development is projected to occur primarily in the RBD, this analysis will only examine potential developments in the RBD. Note also that because no stand-alone retail is included in the 25-year planning horizon, retail fees and retail development are excluded. 10 The table below summarizes the assumed prototypical projects for residential and non-residential development. Prototypical Development Size per Development Type Development Type Typical Acreage for Project (acres) DUA / FAR DU / SF Residential A B A * B Townhome Development Multi-Family Development Non-Residential A B A * B * 43,560 Office Development ,340 R&D Development ,898 Industrial Development ,670 Retail Development ,424 Note: DUA: Dwelling unit per acre; FAR: floor-area ratio; DU: Dwelling unit 65

252 Appendix Table E - 1: Fee Burden for Development within RBD Recommended Impact Fee and Other Estimated Fees in the RBD Category for Impact Fee Townhouse (per DU) Multi-Family (per DU) Office (psf) R&D (psf) Industrial (psf) Fees Calculated Under this Effort Parks Trails (citywide only) n/a n/a $0.87 $0.37 $0.25 Community Facilities (citywide only) $510 $422 $0.25 $0.11 $0.07 Water Infrastructure (citywide + RBD-specific) $4,317 $1,794 $1.51 $3.67 $3.56 Roadway Infrastructure (RBD-specific only) $9,981 $11,424 $18.91 $13.93 $11.97 Streetscape (RBD-specific only) $1,505 $1,245 $0.74 $0.32 $0.21 Subtotal $20,284 $17,270 $23.73 $23.06 $20.70 Other City Impact Fees Sanitary Sewer (estimates of potential fees in RBD) $877 $670 $0.35 $1.23 $1.20 Quimby Act (citywide estimate) $8,210 $8,210 n/a n/a n/a Affordable Housing In-Lieu Fee (citywide estimate of potential fees) $23,000 $18,975 n/a n/a n/a Subtotal $32,087 $27,855 $0.35 $1.23 $1.20 Source: AECOM, City of East Palo Alto, 2013 FEE BURDEN ESTIMATES FOR DEVELOPMENT Using the estimated fees and prototypical developments, an approximate per-acre fee burden 11 for various types of development can be determined (Appendix Table E - 2). Note that these developments are assumed to occur in the RBD, where the majority of development is projected to happen in East Palo Alto. It is useful to understand the relative percentage of each type of fee for each real estate product type. Appendix Table E - 2 has a breakdown by fee type for each product type, which is graphed in Appendix Figure E - 1 and Appendix Figure E - 2 (for residential and non-residential development respectively). 11 Fee burden is determined as a per-acre fee, since each prototypical development is assumed to be a one-acre development. 66

253 Appendix Table E - 2: Tabulation of Proportional Per-Acre Fee Burden on Development, by Fee Type Estimate of Fee Amounts Total Fee $1,311,333 $1,834,112 $1,583,663 $656,409 $718,510 Fee as Proportion of Total Fee Burden Townhouse Multi-Family Office R&D Industrial Affordable Housing In-Lieu Fee 44% 42% 0% 0% 0% Roadway Infrastructure 19% 25% 78% 57% 54% Quimby Act 16% 18% 0% 0% 0% Water Infrastructure 8% 5% 7% 20% 22% Storm Drainage 8% 4% 6% 15% 16% Streetscape 3% 3% 3% 1% 1% Community Facilities 1% 1% 1% 0% 0% Sanitary Sewer 2% 1% 1% 5% 5% Parks & Trails 0% 0% 4% 2% 1% Source: AECOM,

254 Appendix Figure E - 1: Proportional Fee Burden on Residential Development 100% 90% 1% 2% 1% 1% 3% 3% 8% 4% 5% 80% 8% 18% 70% 16% Community Facilities (citywide fee) 60% Sanitary Sewer 19% 25% 50% Streetscape 40% Storm Drainage 30% Water Infrastructure 20% 44% 42% Quimby Act Roadway Infrastructure 10% Affordable Housing In-Lieu Fee 0% Town House Multi-Family The breakdown of fees by proportion of total fee burden is similar between townhouse developments and multi-family developments. For both, affordable housing in-lieu fees constitute a significant proportion (42 to 44 percent), Quimby Act fees constitute about 16 to 18 percent, and sanitary sewer fees constitute only about 1 or 2 percent. In terms of impact fees, roadway infrastructure impact fees constitute approximately 19 to 25, water infrastructure impact fees constitute 5 to 8 percent, storm drainage impact fees constitute 4 to 8 percent, and streetscape and community facility impact fees constitute under 5 percent. 68

255 Appendix Figure E - 2: Proportional Fee Burden on Non-Residential Development 100% 4% 2% 1% 1% 0% 1% 0% 1% 3% 5% 5% 1% 90% 6% 15% 16% 7% 80% Parks & Trails 70% Community Facilities (citywide fee) 60% 20% 22% Streetscape 50% Sanitary Sewer Storm Drainage 40% 78% Water Infrastructure 30% 57% 54% Roadway Infrastructure 20% 10% 0% Office R&D Industrial The breakdown of fee burdens across non-residential development is relatively uniform. For all nonresidential developments office, R&D, and industrial developments roadway infrastructure comprises well over half of the fee burden proportionally. Water infrastructure and storm drainage impact fees constitute another 13 percent to 38 percent. The remaining fees and impact fees constitute less than 10 percent of the fee burden. 69

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257 APPENDIX F: COMMITTED FUNDING DETAILS Committed funds for various infrastructure projects comes from a variety of sources, primarily grant monies. The tables below show the breakdown of committed funds and sources. Appendix Table F - 1: Details and Sources of Committed Funding for East Palo Alto Infrastructure Projects Federal Transportati on Earmark Grant (FTEG) Required Local Match for FTEG 1 One Bay Area Grant (OBAG) Local Impact Fees 2 HUD EDI Grant 3 State Tribal Assistance Grants (STAGs) Prop. 84 Total Roadway (DEPLAN ) $6,000,000 $1,500,000 $7,500,000 Streetscape (DEPLAN) $2,000,000 $500,000 $2,500,000 Sanitary Sewer (DEPLAN) $0 Water Infrastructure $5,889,535 Supply (Gloria Well Assessment/Rehab) $749,000 $749,000 Storm Drain (DEPLAN) $1,500,000 $375,000 $1,000,000 $250,000 $1,390,535 $4,515,535 Water Distribution (DEPLAN) $625,000 $625,000 Parks & Trails (Cooley Landing) $5,042,000 $5,042,000 Notes: 1. FTEG requires a local match representing 20 percent of the total funding amount. 2. Local impact fees collected from DKB homes 3. The U.S. Department of Housing and Urban Development (HUD) Economic Development Initiative (EDI) grant Appendix Table F - 2: Details of STAG Funding Water Supply Funding 2009 EPA STAG $1,067,000 Total Expenditure to date ($318,000) Costs for feasibility analysis, design, and environmental work Remaining funds for construction $749,000 Remainder Storm Drainage Funding 2008 EPA STAG $788,000 Total 2010 EPA STAG $848,000 Total Expenditure to date ($219,316) Cost of design and environmental work Expenditure to date ($26,149) Cost of additional design and environmental work Remaining funds for construction $1,390,535 Remainder 71

258 CITY OF EAST PALO ALTO OFFICE OF THE CITY MANAGER 2415 UNIVERSITY AVENUE EAST PALO ALTO, CA Policy and Action Item: #9C City Council Agenda Report Date: July 15, 2014 To: Via: From: Subject: Honorable Mayor and Members of the City Council Magda A. González, City Manager John A. Nagel, City Attorney John Doughty, Community and Economic Development Director Discussion on Potential New Moratorium on Land Use Entitlements West of Highway 101 Recommendation Discuss whether to impose a new moratorium on land use entitlements west of Highway 101; and by motion, direct the Office of the City Attorney to return to City Council, no later than September 16, 2014, with an interim moratorium ordinance and a recommendation as to duration (i.e., one-year or two-year). Alignment with City Council Strategic Plan This recommendation is primarily aligned with: Priority #2: Enhance Economic Vitality Priority #4: Improve Public Facilities and Infrastructure Priority #6: Create a Healthy and Safe Community Background Following a public hearing held on November 20, 2012, the City Council adopted an interim urgency ordinance, in accordance with Government Code Sections 65858(b) and 65090, imposing a moratorium on new land use entitlements west of Highway 101 (hereinafter the Westside ) for an initial term of 45 days. Later, the City Council held a second public hearing on January 3, 2013 to discuss the issue of whether to extend this initial moratorium. Ultimately, the City Council adopted Interim Urgency Ordinance No. 359 which extended the initial moratorium on new land use entitlements in the Westside. The extended moratorium is set to expire on November 20,

259 The extended moratorium was based on five overlapping concerns that were specific to the Westside, which the City Council found would pose a potential threat to public health and safety, including earthquake risks arising from soft-story construction; flood control issues; traffic/pedestrian challenges; fire risk arising from inadequate water pressure/storage; and displacement or eradication of affordable housing arising from further development. The intent of the moratorium was to provide the City the opportunity to evaluate development in the Westside more fully in the context of the City s concurrent plans to update the 1999 General Plan and implementing regulations. As noted above, the City of East Palo Alto is in the process of updating its 1999 General Plan and implementing regulations. As part of that process, among other things, the City is also preparing a chapter of the updated General Plan specifically addressing the Westside ( Westside Area Plan ), updating the Safety Element with new goals and policies that will be implemented through new development standards, and working with the Association of Bay Area Governments to revise the Hazard Mitigation Plan to better address the flood, seismic and fire hazards uncovered during planning and research. The planning and adoption process for the General Plan, implementing regulations, and accompanying environmental review process is scheduled to be completed after the extended moratorium is set to expire on November 20, Analysis In 1997, the Legislature amended Government Code Section to give explicit permission to local governments to impose a new moratorium on land that had previously been covered by an earlier moratorium. See 1997 Cal. Stat., ch (SB 927). Significantly, the Legislature added subdivision (f) of Section of the Government Code, which provides that upon termination of a prior interim ordinance, the legislative body may adopt another interim ordinance... provided that the new interim ordinance is adopted to protect the public safety, health, and welfare from an event, occurrence, or set of circumstances different from the event, occurrence, or set of circumstances that led to the adoption of the prior interim ordinance. (Emphasis added.) Since the adoption of the initial moratorium and its extension in 2012, several new events or circumstances have occurred that may merit consideration of imposing a new moratorium for the Westside. The new events or circumstances relate to safety, mobility, and the availability of affordable housing. The latter of these new events or circumstances has resulted in unexpected delays in completing the Westside Area Plan. As an aside, the delay inhibiting the timely finalization of the General Plan update, and that portion of it discussing new known hazards and the Westside Area Plan, which will be implemented by regulations, before granting new land-use entitlements in the Westside may itself constitute a new event or changed circumstance. More specifically, the City experienced significant flooding and attendant damage on December 23, 2012, when the San Francisquito Creek overtopped its banks on the Westside. The flood caused the City to issue a declaration of emergency just one month after the moratorium. Prior modeling did not anticipate the overtopping of the bank under the flow conditions recorded. Nor was the damage to the banks, utilities, infrastructure, and homes along Woodland Avenue anticipated. Woodland Avenue is one of the principal modes of access to the Woodland and Willows neighborhoods. Additional study of the flooding issue is warranted (e.g., to understand the full breadth of its implications).

260 Although flood control projects have been planned for the San Francisquito Creek for a number of years, the Bay-to-Highway-101 project (Phase 1) has experienced significant delays due to permitting issues with the relevant regulatory agency, the Regional Water Quality Control Board, an unforeseen changed circumstance. At the time of the initial moratorium in November 2012, the City Council anticipated that this project would be two years into its construction phase. However, construction is now expected to commence no sooner than in spring 2015 due to permitting delays, which in turn is expected to delay completion until Other unforeseen complications have arisen relating to safety. First, the California Department of Transportation plans to expand culverts underneath Highway 101 to convey flood and storm water are delayed by one year or more. Second, the City of Palo Alto s process to replace the Newell Road Bridge spanning the San Francisquito Creek, which would provide an evacuation route during an emergency, has also experienced delays. Newell Road Bridge is a critical component of Phase 2 (Hwy 101 to Middlefield Road Bridge) of the flood control project. Moreover, mobility for Westside residents has significantly deteriorated since the adoption of the moratorium through the elimination of parking in Palo Alto s Crescent Park Neighborhood, which abuts the Westside. This new condition, compounds other related circumstances, such as delays in funding the Highway 101 pedestrian overcrossing, an escalation in costs to expand the University Avenue Bridge to accommodate pedestrians and cyclists, and an increase in traffic on University Avenue and Highway 101, all of which means that the implementation of the Hazard Mitigation Plan will be delayed. This plan specifically identifies the need to develop unused or new pedestrian rights-of-way as walkways to serve as additional evacuation routes (INFR-a-10). Finally, a significant increase in housing values of 28.8% between January 2013 to January 2014, and rents of 10% from fourth quarter 2012 to fourth quarter 2013, which occurred after the extended moratorium was in place, emphasizes the need to complete the General Plan and portions of it devoted to the Westside Area Plan prior to considering new entitlements. This increase in housing values was unforeseen, even as recently as twelve months ago, when the initial moratorium was enacted and later extended. Affordability in this region of East Palo Alto is significant because, by some estimates, the Westside provides 15% of San Mateo County s affordable housing. This surge in housing costs and rents militates in favor of completion of the General Plan update, especially the Westside Area Plan, before new land use entitlements are approved so that this concerted plan identifies goals and policies that East Palo Alto s Zoning Code implements, in accordance with California law i.e., Senate Bill 375 (Sustainable Communities and Climate Protection Act) and Assembly Bill 32 (Global Warming Solutions Act). By providing affordable housing for itself and neighboring job centers, such as Palo Alto, Menlo Park, and Redwood City, the City of City of East Palo Alto envisions meeting these State mandates and protecting the public welfare.

261 Conclusion New events or circumstances have occurred since the enactment of the initial moratorium in November 2012 and its extension in January 2013 on new land use entitlements in the Westside. These changes were unforeseen and represent significant new issues that warrant study in conjunction with the General Plan and Westside Area Plan. As such, Staff recommends the City Council discuss the need for a new moratorium based on new events or changed circumstances; and, by motion, direct the Office of the City Attorney to return to City Council, no later than September 16, 2014, with an interim moratorium ordinance and a recommendation as to duration (i.e., one-year or two-year). Staff expects that the expiration of any moratorium should coincide with the scheduled adoption of the General Plan and certification of the related programmatic Environmental Impact Report. Fiscal Impact There is no fiscal impact associated with this policy and action item seeking City Council direction.

262 CITY OF EAST PALO ALTO OFFICE OF THE CITY MANAGER 2415 UNIVERSITY AVENUE EAST PALO ALTO, CA Policy and Action Item: #9D City Council Agenda Report Date: July 15, 2014 To: Via: From: Subject: Honorable Mayor and Members of the City Council Magda A. González, City Manager John Doughty, Community and Economic Development Director Site Work for a New Playground at Bell Street Park. Recommendation Adopt a resolution: 1) Approving the plans and specifications for a playground at Bell Street Park, retroactively authorizing the advertisement of the project for bid; 2) Authorizing the City Manager to accept and analyze the bids received, award a construction contract to the lowest responsive and responsible bidder, and establish a change order contingency of 10% of the bid amount; and authorizing the City Manager to allocate additional funding in an amount not to exceed $125,000 for the project from the Capital Improvements Reserve Fund, if needed. Alignment with City Council Strategic Plan This recommendation is primarily aligned with: Priority #4: Improve Public Facilities and Infrastructure Priority #5: Improve Communication and Enhance Community Engagement Priority #6: Create a Healthy and Safe Community Background In 2013, at the request of the City Manager, staff submitted a Community Partner Program application to KaBOOM!, Inc., expressing interest in partnering with KaBOOM! and a corporate funding partner to build a new playground structure at Bell Street Park. KaBOOM! is a national non-profit organization dedicated to building play spaces for children. The organization has built over 2,200 playgrounds, serving over 5.5 million children.

263 After review of the City s application, KaBOOM! notified the City that the application would proceed to the next stage in the selection process, and on July 2, 2013, the City Council adopted Resolution No authorizing the City Manager to enter into a Community Partner Playground Contract in anticipation of partnering on the project in the fall. Unfortunately, the opportunity did not come to fruition. In April 2014, KaBOOM! notified the City Manager that there was a potential funding partner interested in working with the City of East Palo Alto and other City partners to build a playground at Bell Street Park. On May 15, 2014 the City of East Palo Alto and the YMCA of Silicon Valley agreed to collaborate with KaBOOM! and Coupons.com in a playground project at Bell Street Park. The KaBOOM! process is community-driven and each partner has responsibilities to fulfill to complete the project. The Community Partners (i.e. the City and the YMCA) role is to provide the land, complete the site preparation, assume insurance, maintenance and liability of the playground, obtain any necessary permits, make a cash contribution of $8,500 towards the cost of play equipment, host various events such as Design Day and Build Week, and form a Planning Committee to work together with KaBOOM! and Coupons.com to execute a successful Build Day at Bell Street Park. Multiple coordination meetings have taken place with KaBOOM! s representatives and community partners via teleconference calls. On May 23, 2014, the City entered into an agreement in the amount of $19,105 with BFS Landscape Architects (BFSLA) to complete a topographic survey, site design, plans and specifications to create a 4,000 square foot site at the park to accommodate the playground. These plans were coordinated with Playworld Systems, the playground equipment provider for KaBOOM! In addition, as part of KaBOOM! s requirements, and for liability purposes, the City conducted soil sampling and testing for lead and arsenic at the playground site. The City entered into a contract with Red Hills Environmental, in an amount not to exceed $2,250, for these purposes. KaBOOM! s Design Day was held the afternoon and evening of June 18, 2014 at the YMCA. Design Day represents the community kick off of the project. Design Day was a 5 hour event broken up into three stages, facilitated by the KaBOOM! project manager, which included a site tour, a youth session and an adult session. At these workshops, approximately 40 kids and adults drew their dream playground and offered ideas for play equipment to be included in the playground. City staff conducted additional outreach and voting on playground design in conjunction with the City Anniversary event held on June 28 th. The results of this activity is being used to finalize the design of the playground equipment.

264 Analysis The schedule to prepare the site and build the playground was established by KaBOOM!, and the funding partner Coupons.com. As a result, the time available to prepare and obtain approval of the project plans and specifications, advertise for bids, and construct the site improvements in time to build the project is very short. The Build Day, the day when all volunteers and community partners come together to construct the play equipment, is set for August 20, Preparation dates, when KaBOOM! and Playground Systems staff with community volunteers, will mark and dig out the foundation to install the equipment selected on Design Day, are scheduled for August 18 and 19, There is currently no developed area for the playground. As such, the City is having to design the entire playground area to accommodate the equipment being placed by KaBOOM! Site preparation includes completion of an accessible walkway to the site in compliance with the Americans with Disabilities Act, and the California Building Code, a concrete viewing area pad, site grading, compacting, site perimeter concrete work and completion of rubber surfacing to accessible areas of the playground equipment. The site preparation construction is estimated to cost approximately $100,000. Because the estimated cost exceeds $5,000 and because the cost is funded by public monies, the project is a public work as defined by the Municipal Code and the Labor Code. Public bidding and payment of prevailing wages are required. The City Engineer reviewed the plans and staff advertised the project for bids. Staff sent plans to contractors on July 8, Bids will be received by the City Clerk on July 18, 2014, after the start of City Council s recess. In order for the site to be ready for KaBOOM! s preparation dates, the City must complete construction of the site preparation no later than August 15, After review and analysis of all bids received, staff proposes to make a recommendation to the City Manager to award the construction contract to the lowest responsive and responsible bidder. Staff anticipates awarding the contract by July 22 nd and pending receipt of insurance certificates, expects that construction will start by July 28 th, in order to be completed by August 15 th. BFSLA completed the plans and specifications on July 7, Because of the tight project timeline, staff advertised the project for bids in advance with reservation of the right to reject all bids. Staff recommends that the City Council approve the plans and specifications, and retroactively approve the advertisement of the project. In addition, staff recommends that the City Council authorize the City Manager to accept and analyze the bids received, award a construction contract to the lowest responsive and responsible bidder and establish a ten percent change order contingency. This project is statutorily exempt from environmental review pursuant to the California Environmental Quality Act, (CEQA), Section 15303, installation of small new equipment and facilities.

265 Budget Bell Street Park Improvements (CIP-PK-10) is included in the Capital Improvement Program (CIP). The Adopted FY Capital Budget includes $80,000 for the KaBOOM! project. When the CIP Budget was prepared, the estimated cost of the KaBOOM! project was not known due to the need to design and engineer the project. Notably, California Disabled Access requirements within the playground area were not fully known and acknowledged by KaBOOM! To date, $29,855 has been expended on design services, soils testing and the City s contribution toward the cost of play equipment. A balance of $50,145 remains available to complete the site preparation which, based on the current estimate prepared by BFSLA, may not be adequate. As noted earlier, California Disabled Access regulations require the construction of a path of access and pad area for all ADA compliant pieces of the playground structure. The estimated cost to install the approximately 1,000 sq. ft. play mat is $15,000, or about $15 per square foot, which is not included in the project budget. KaBOOM! and the funding sponsor will not contribute to the cost to install the mat, as the organization s policy is to only provide Fibar, a loose fill material, which will be used in the balance of the playground. Therefore, staff recommends that the City Council authorize the City Manager to allocate additional funding in an amount not to exceed $125,000 for the project from the Capital Improvements Reserve Fund, if needed. If private donations are obtained through community fundraising efforts, the donations will augment the City s budget funds. Fiscal Impact The Bell Street Park improvements project is included in the Capital Improvement Program (CIP). The Adopted FY Capital Budget includes $80,000 for this project. $19,105 has been already spent in designing the playground site and producing bidding documents, $2,250 in soil testing, and $8,500 will be paid to KaBOOM!, towards the cost of the playground equipment. Therefore, $50,145 is still available to complete the site preparation before Build Day. These funds have been already allocated by the City Council in the CIP. Funds are available in the CIP Reserve Fund to augment the project budget if needed.

266 RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO; 1) APPROVING THE PLANS AND SPECIFICATIONS FOR A PLAYGROUND AT BELL STREET PARK, RETROACTIVELY AUTHORIZING THE ADVERTISEMENT OF THE PROJECT FOR BID; AND, 2) AUTHORIZING THE CITY MANAGER TO ACCEPT AND ANALYZE THE BIDS RECEIVED, AWARD A CONSTRUCTION CONTRACT TO THE LOWEST RESPONSIVE AND RESPONSIBLE BIDDER, AND ESTABLISH A CHANGE ORDER CONTINGENCY OF 10% OF THE BID AMOUNT; AND AUTHORIZING THE CITY MANAGER TO ALLOCATE ADDITIONAL FUNDING FOR THE PROJECT FROM THE CAPITAL IMPROVEMENTS RESERVE FUND, IF NEEDED. WHEREAS, the City in partnership with the Silicon Valley YMCA, recently entered into an Agreement with KaBOOM! and Coupons.com to build a playground at Bell Park; and WHEREAS, on July 8 th, 2014, a Request for Proposals (RFP) to prepare a site to build a playground at Bell Street Park was sent out to the Builders Exchange and fourteen contractors that do site preparation and concrete work, and the Peninsula Builders Exchange; and WHEREAS, given that contractors bids will be received until after the City Council s July 15 meeting, and the project site work needs to be completed by August 15; and WHEREAS, staff will review and analyze the bids and will recommend to the City Manager the selection of the lowest responsive and responsible bidder; NOW, THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO HEREBY: 1) approves the plans and specifications for the project, and retroactively authorizes the advertisement of the project for bid; and, 2) authorizes the City Manager to accept and analyze the bids received, award a construction contract to the lowest responsive and responsible bidder and establish a change order contingency in the amount of 10% of the bid; and authorizing the City Manager to allocate additional funding in an amount not to exceed $125,000 for the project from the Capital Improvements Reserve Fund, if needed. PASSED AND ADOPTED this 15 th day of July 2014, by the following vote: AYES: NAES: ABSENT: ABSTAIN: ATTEST: Nora Pimentel, Deputy City Clerk SIGNED: Laura Martínez, Mayor APPROVED AS TO FORM: John A. Nagel, City Attorney

267 CITY OF EAST PALO ALTO OFFICE OF THE CITY MANAGER 2415 UNIVERSITY AVENUE EAST PALO ALTO, CA Policy and Action Item: #9E City Council Agenda Report Date: July 15, 2014 To: Via: From: Subject: Honorable Mayor and Members of the City Council Magda A. González, City Manager John Nagel, City Attorney Barbara Powell, Assistant City Manager Proposed Community Panel to Interview Candidates for Police Chief Recommendation That each City Council member provide to the City Manager the name of one individual to serve on a Community Panel to interview candidates for the position of Police Chief, no later than Monday, July 21 st and provide clarification as to the City Council intent regarding their direction to the City Manager for community involvement in the interview process for the number of finalists as determined by the City Manager. Alignment with City Council Strategic Plan This recommendation is primarily aligned with: Priority #3: Increase organizational effectiveness and efficiency Priority #5: Improve communication and community engagement Priority #6: Create a healthy and safe community Background On December 17, 2013, the City Council adopted Resolution No determining that the City Manager has the authority to appoint the Chief of Police and that the community and City Council be involved in the interview process for the number of finalists as determined by the City Manager. (Attachment).

268 On January 20, 2014, the City of East Palo Alto issued a Request for Proposals (RFP) to undertake an Executive Recruitment for the position of Police Chief. Three firms responded to the RFP and, following careful evaluation, Bob Murray and Associates (BMA) was chosen to undertake the recruitment. The City entered into an Agreement with BMA on March 17, Since that time, BMA has prepared a recruitment brochure, distributed it via regular mail, on-line and through targeted advertising, and has undertaken outreach to its extensive network of Public Safety professionals. The recruitment officially closed on July 10, BMA will review all applications received, identify the most qualified candidates and conduct initial screening interviews with this group of candidates. Analysis On July 24, 2014, BMA will meet with the City Manager to review the candidates and to solidify the group of candidates who will move forward in the process. After consulting with BMA and several Public Safety professionals, the City Manager is proposing a two-panel process to further screen candidates: 1. Subject Matter Experts Two City Managers and two Police Chiefs from neighboring jurisdictions; and 2. Executive Team The City s Executive Managers. The two-panel process will be held on one day, to promote efficiency in the process, candidates would sequentially meet with each panel. Candidates will also be asked to submit a writing sample. The most highly rated/most qualified candidates will then be invited back to meet with a proposed Community Panel, City Council members and, to interview with the City Manager. In order to assure that the City Manager can carry out the City Council s objective related to community involvement in the interview process, it is necessary for the City Council to clarify its intent when it adopted Resolution Based on the Council s direction to the City Manager that the community should be involved in the interview process, with the intent that they could provide input to the City Manager regarding the finalists for the position of Chief of Police, if individual Council Members provide a name to the City Manager of an individual to serve on a Community Panel, the City Attorney has determined that this Community Panel is a legislative body under the Brown Act. As the Community Panel would be subject to the Brown Act, it will be required to post an agenda that advises the public of its meeting and the matters to be transacted or discussed, and its meeting will be open to the public. When Resolution 4484 was adopted there was not a clear articulation as to the level and nature of community involvement that the City Council desired. Based on the determination that the Community Panel is subject to the Brown Act, it is essential to obtain clarification from the City Council as to the role they intended the general public and the Community Panel to have in the interview process.

269 As a legislative body under the Brown Act, with the charge to provide input to the City Manager as to the appointment of a public employee, the Community Panel would be permitted to interview finalists and deliberate as to the nature of their input or recommendations to the City Manager in closed session, pursuant to Government Code section This exception to the open meeting requirement of the Brown Act is commonly referred to as the personnel exception and its purpose is to avoid undue publicity or embarrassment for an employee or applicant for employment. Specifically, as it relates to the appointment of a public employee, this exception permits a full and candid discussion of the applicants qualifications, and avoids compromising the privacy interests of the applicants. While the interviews could be conducted in closed session, it should be noted that per the Brown Act, the meeting must be opened in a public setting with an opportunity for public comment before adjourning to closed session. If the City Council s intent was to have the Community Panel serve as a representative body of the citizens of East Palo Alto, then having the Community Panel conduct its interviews in closed session and having the general public provide input during an open meeting would seem consistent with this type of community involvement model. If the City Council s intent was for the City Manager to incorporate a community input component and to select members of a Community Panel, then the Council can provide such direction to the City Manager at tonight s meeting. Under this type of community involvement model, the Community Panel would not be a legislative body under the Brown Act. If the Council determines it desires to appoint a Community Panel, staff is requesting that, no later than Monday, July 21 st, each City Council member provide the name of one individual to serve on the Panel to interview candidates for the position of Police Chief. Fiscal Impact There is no fiscal impact associated with the actions recommended in this Report. Attachments Resolution 4484

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