Construction is staged at NorthPoint in East Cambridge in 2007, roughly 20 years after the city last set its development “linkage” fees. (Photo: iskunk)

For the first time in nearly three decades, city officials are raising the “linkage” rate developers pay to help build affordable housing, as well as expanding what kinds of development incurs the fee.

Amid what is widely called an affordable-housing crisis, a unanimous vote of nine city councillors Monday set the new rate at $12 per square foot, which is more than 2.5 times the current rate – but less than half the “maximum determined housing contribution rate” of $24.30 per square foot described in a January study cited by councillors in deciding a figure.

The vote for the lower figure recommended in that study may yet have been based on two misunderstandings, its author said Wednesday.

Councillor Nadeem Mazen proposed a linkage fee of $24.30 before the final vote on the zoning, but only he and councillor Dennis Carlone were in favor, and it failed 7-2.

Also before the final vote, Craig Kelley told his fellow councillors he would support going up to $16 if there were “votes on the table,” but he never made a motion to test support.

Old rules, new rules

The figure voted in by the council means developers will pay $12 per square foot of new construction to the city’s Affordable Housing Trust, with an additional dollar increase plus inflation over each of the coming three years. The size of construction triggering the fee is to stay at 30,000 square feet, but the zoning in place since 1988 made it apply only for construction needing a special permit, and now it will be even for a project built as of right; and while it used to apply only to office, retail and “non-commercial research” land uses, the new zoning adds hotels and motels, non-public uses such as universities, health care and social services, industrial uses and radio and television stations.

The linkage fee, also called incentive zoning, is to be re-examined every three years. The same schedule was in place 27 years ago when the fee was set at $3.28 (the rate has risen to $4.58 to reflect incremental growth in the consumer price index). The council got a 2002 study that suggested raising it to $7.83, but failed to act on it when it disappeared into a committee co-chaired by councillor David Maher, now mayor.

The city missed nine reassessments.

“It shouldn’t have happened that way, and we can talk about that all night long, but we’re fixing that,” councillor Marc McGovern said.

Apparent misstatements

While some argued that instituting a higher rate was justified in part by the roughly $3.9 million in linkage lost in the past three decades – as well as by the fact the city is highly desirable to developers and in the middle of a very long real estate boom – others cited experts including Karl F. Seidman, author of the January “nexus” study, and from the city’s Affordable Housing Trust and Community Development Department that going too high would scare off developers.

“We’re taking a dramatic step of almost tripling the fee,” councillor Leland Cheung said, not commenting on the decades of lost revenue but noting that the city imposes other fees and costs on big developers, including community benefits and net zero energy efficiency rules. “We’re being aggressive but not risking destabilizing the [economic] engine.”

Cheung noted the long road taken to get linkage back on track, after a council request in 2008 for a study failed to get attention from the City Manager’s Office until 2011, then disappeared again until Cheung asked again in April 2013. The search for a consultant to write the study didn’t get underway until May 2014. Since the report arrived in January, there has been several hearings, with some apparent misstatements continuing from one to another without correction.

Even Monday, Cheung said in reference to setting the linkage fee rate, “If we wind up not building anything, we don’t get any money to put back into affordable housing,” echoed by councillor E. Denise Simmons, who led four Housing Committee discussions of the fees: “Our higher rate could lead to fewer developments, which would translate to less linkage fees generated. You can not generate linkage fees absent new development.”

Consultant’s view

Consultant Karl F. Seidman, author of a study on developer “linkage” fees.

“It was certainly a very thorough and deliberative process,” Seidman said of city officials’ steps in the nearly 10 months since he filed his report.

Yet the councillors’ comments seem to miss that linkage “is about addressing new demand for housing that’s associated with employment resulting from new development,” Seidman said – meaning the lack of development incurs less need for new housing. His report made it clear that the goal was to calculate the “subsidy needed to create new affordable housing that satisfies the demand generated by new workers.”

The councillors were broadly correct, though, he said, since a high rate in Cambridge could send development over the border to Somerville, which is close enough to likely generate demand for housing in Cambridge. The city would “get the impacts without any of the revenue from linkage fees to offset them,” he said. “They may have been trying to communicate that.”

In researching his study, Seidman said, he interviewed developers who explained why Cambridge was appealing despite the fees and costs they faced – and on Wednesday he noted their concern about a cumulative effect.

He also cited the city’s ongoing strategy of keeping the tax burden on commercial property, allowing homeowners to pay less. On Monday, city officials announced residential tax rates that were subsidized in part by building permits.

Show a nexus

The other linkage-fee misunderstanding, cited at recent council and committee meetings but not at length Monday, was the fear that a higher fee would draw legal challenges from developers.

There’s no obvious basis for the argument that $24.30 per square foot is legally dangerous but $12 per square foot isn’t. A Supreme Court decision two years ago said merely that “the government must show that there is a nexus and rough proportionality between its demand on the landowner and the effects of the proposed land use,” in the words of Scotusblog recapper Tejinder Singh, and the Seidman study draws that nexus before making a market-based suggestion to halve it to protect against losing a competitive advantage.

Seidman resisted giving a legal opinion Wednesday, but gave his understanding that “there might be an argument that if the provisions of the ordinance were so restrictive that they impaired a property owner’s ability to develop. Courts could rule it effectively as a taking, for which the property owner would have to be compensated.”

“But that isn’t really related to the size of the fee itself,” he said. “It’s more related to if there was no way for a property owner to avoid the fee – if you made the fee subject to any use they might have with their property.”

That’s not what Cambridge was doing, though, because the zoning looks only at non-residential development. “One could build housing on your property and not pay the fee,” Seidman said. “That whole study was the basis for the proportionality.”