Local elected officials and business leaders alike agree that St. Petersburg, like many cities around the country, is facing a housing affordability crisis. They can even agree on some of the fixes: bolstering the Affordable Housing Trust Fund, changing zoning ordinances and land use regulations, and making land available to nonprofit partners.
What they don’t agree on is how to pay for it.
For the past year, St. Petersburg Mayor Rick Kriseman and his staff have been looking at the possibility of imposing a linkage fee to spur affordable housing development. Linkage fees are a mechanism for funding affordable housing that would impose a fee per square foot of new market rate developments. Such fees have been used effectively in cities like Denver, Los Angeles, Seattle and Boston to fund affordable housing projects.
The City of St. Petersburg recently accepted a proposal for the nexus study, which will evaluate the relationship between incoming market rate development and demand for affordable housing. The nexus study, which takes about six months, creates a context around establishing guidelines for the linkage fees, based on current development costs and housing needs.
In response, the St. Petersburg Area Chamber of Commerce came out strongly against linkage fees, when it released its own three-pronged proposal to spur an increase in the city’s affordable housing stock. In the proposal, the Chamber argued that linkage fees not only place undue burden on the shoulders of developers and end-users, but also fail to garner enough dollars to be a viable funding source.
The Chamber proposed its own funding mechanism, using a city-wide tax increment financing model. Under this model, rising property values (assuming they continue to rise) would lead to more dollars paid in ad valorem taxes. A percentage of the increase in tax revenue from year to year would be placed into an affordable housing trust fund. The TIF funding mechanism was first brought to City Council by councilmember Darden Rice, who presented a case study from Rochester, Minnesota, home of the Mayo Clinic.
Last week, Neighborhood Affairs Administrator Robert Gerdes sent a response letter to the Chamber, pointing out what he called several “inaccurate” claims in the Chamber’s analysis and proposed plan. In the letter, he stated, “While we welcome stakeholder feedback and are open to all suggestions to alleviate burdensome housing costs, several of the comments in the Housing Proposal are inaccurate or are currently being navigated to implementation.”
Gerdes cited inaccuracies in the portrayed burden of cost to developers, as well as the use of Coconut Creek, Florida as a model to estimate the impact of linkage fees.
“A linkage fee dictates developers and end users of new construction only should bear the complete burden to fund affordable housing,” the Chamber proposal stated, “but this is a community-wide problem affected by rising values of both new and already built real estate.” According to the Gerdes response, there are already a number of other existing mechanisms to fund affordable housing, including programs funded by federal taxpayers, the documentary stamp tax that funds the Sadowski Housing Trust Fund, tax increment financing that goes toward the South St. Petersburg Community Redevelopment Area, and a portion of Penny for Pinellas sales tax revenues.
Gerdes’ response also takes issue with the Chamber’s use of Coconut Creek as an example for how linkage fees would be used in St. Petersburg. The Chamber states that using the fees imposed in Coconut Creek, St. Pete would have raised $870,444 for affordable housing in 2017 and just $348,320 in 2018. However, Gerdes said the comparison gives an “inaccurate estimate of potential revenue” because Coconut Creek does not charge linkage fees on residential developments, something the City of St. Petersburg has intended to do from the beginning. With the addition of residential developments at the same rate, Gerdes stated that “a conservative estimate of potential revenue from a linkage fee would be significantly higher than the numbers in the Housing Proposal document.”
Proponents of the Chamber’s proposal, like Shaun Amarnani, a private land use attorney and licensed real estate broker in St. Petersburg who serves on the Grow Smarter Housing Work Group and Chamber’s Housing, Land Use and Development Committee (HLUD), say that the Chamber’s proposed funding mechanism is forward thinking without burdening development.
“This program would only be on future, unexpected property tax revenue and it could be structured to not take any money out of today’s existing budget,” said Amarnani. “It is like saying we are getting an unexpected bonus from work,nand we are going to set aside 10 percent of the bonus for an emergency. There are other cities that do this, and I think it is a sound, long-term solution to affordability.”
Gerdes disagreed with this assessment. He stated that the Chamber’s proposed funding mechanism, a dedicated percentage of city-wide tax increment financing (estimated to equate to $5.1 million dollars), would lead to budget cuts for “essential city services,” of the same amount. Gerdes told the St. Pete Catalyst that existing revenues don’t even cover essential services like police and fire rescue. He says the city creates its budget according to forecasted ad valorem taxes. These increases go toward things like contractual obligations to employees, including contractual pay increases and health insurance premium increases.
“Leaving aside the legal issues associated with this proposal, the Chamber does not make any suggestions on which essential services the City provides should have been cut by the equivalent $5.1 million dollars,” Gerdes’ letter stated. “The Administration believes that the City needs to find financing solutions for the development of affordable housing that do not require reductions in existing services.”
Amarnani told the St. Pete Catalyst that the tax increment model best addresses affordable housing scarcity, without dis-incentivizing development of missing middle housing. “St. Pete desperately needs missing middle housing for service workers, teachers, officers, firefighters, younger professionals, the elderly on fixed incomes, and many others,” he said.
“Missing middle” housing provides diverse options including multi-unit duplexes, triplexes and quadplexes, as well as tiny homes, carriage houses, and mother-in-law suites in scale with single family neighborhoods that create naturally occurring affordable housing. When Amarnani worked for the City of St. Petersburg, he publicly advocated for a change in zoning policies to allow skinny houses, alongside former councilman Karl Nurse.
Despite good intentions, Amarnani fears that linkage fees could have “unintended consequences” on missing middle housing. “Missing middle housing developments already operate on smaller margins and the costs of linkage fees could be self-defeating in creating another barrier that makes the development of missing middle housing impossible,” Amarnani said. “If linkage fees are charged by the overall size of buildings, I could also foresee a scenario where developers are indirectly incentivized to build a smaller one story retail building, instead of building a 2+ story missing middle apartment with non-luxury units.”
Amarnani also said linkage fees are a less reliable source of funding than tax increment financing. “Relying on a one-time payment system to fund affordable housing could be disastrous,” he explained, “if a recession hits, development stops, and there is no new revenue for affordable housing at a time when it is desperately needed.”
More news is sure to come following the completion of the City’s nexus study in the coming months. Check back with the St. Pete Catalyst for continued coverage.