Costs for many non-residential developments in San Francisco are poised to increase. On September 19, 2019, the Planning Commission approved a proposed ordinance that would more than double the City-wide Jobs Housing Linkage Fee (JHLF) rate for office and laboratory development. The ordinance now moves to the Board of Supervisors for consideration.

The key provision is a substantial hike in fees for office and laboratory development. The ordinance would increase the JHLF rate per gross square foot (gsf) for office uses from $28.57 to $69.90 and for laboratory uses from $19.04 to $46.43. With the proposed changes, a 100,000 gsf office building would be required to pay a nearly $7 million JHLF.

The proposed ordinance does not include a grandfathering clause so pipeline projects and certain approved projects would be subject to the JHLF changes. The JHLF is normally calculated and due at the time of issuance of the first construction document for a project, which is typically a site or building permit. The proposed ordinance provides that certain projects approved by the Planning Commission (or Planning Department, if applicable) on or before the end of the year (December 31, 2019) will be subject to the higher fee. This applies only if the proposed ordinance is in effect when the JHLF is normally due or a condition of approval is imposed requiring payment of any higher JHLF rate in effect prior to issuance of either the certificate of occupancy or final completion for the project. Such a condition was imposed on at least one already approved Central SoMa project in anticipation of the proposed ordinance.

The proposed ordinance would also change the options for developers to satisfy the JHLF requirement. Compliance through payment to a residential developer would no longer be allowed, but land could still be dedicated in lieu of payment of the JHLF (or in combination therewith) if specified requirements are met. That option would be expanded under the proposed ordinance to all projects, not just Central SoMa projects.

Under state law, the development impact fee must bear a reasonable relationship or “nexus” to the actual impacts of new development and the costs of mitigating those impacts. The City retained consultants to prepare a May 2019 Jobs Housing Nexus Analysis (“Nexus Analysis”) and a June 2019 Jobs Housing Linkage Fee Update Development Feasibility Assessment (“Feasibility Assessment”). The Nexus Analysis examined the connection between employment growth and affordable housing demand in the City and concluded that for each job created, the demand for housing and cost of producing it is substantially higher than what was identified in the original 1997 nexus analysis. It did not include a maximum recommended rate. The Feasibility Assessment examined various office development prototypes and concluded that for some product types and under certain conditions, a JHLF increase of up to $10 per gsf would be feasible. The Feasibility Assessment did not address laboratory space.

The staff report to the Planning Commission recommended approval of the proposed ordinance with modifications to conform to the Feasibility Assessment: a $10 per gsf increase for office uses, and no increase for laboratory uses. The Planning Commission considered testimony regarding the proposed rates and analysis and, in deliberations, generally expressed support for the ordinance while acknowledging that additional work needed to be done to confirm the appropriate maximum increase. The approval was in support of the ordinance without modifications.

We will continue to track this proposed ordinance. It has not yet been scheduled at the Land Use and Transportation Committee of the Board of Supervisors, which is the next step before final consideration by the full Board.