Campbell City Council
August 20, 2024

establishment of limited duration parking, reduce the permitted occupancy, limit the hours of operation, require additional parking management strategies and/ or return the project to the Planning Commission for -review.
c. Smoking: " No Smoking" signs shall be posted on the. premises in compliance with CIVIC 6. 11. 060.
d. Loitering: There shall be no loitering allowed outside the business. The business owner is responsible for monitoring the premises to prevent loitering. e. Live Entertainment: No live entertainment is permitted as part of the Conditional Use Permit, including live music, disc jockey, karaoke, and dancing. f. Noise: Music shall be played indoors and. at a low level at all times. No music shall be audible from outside the tenant space. Unreasonable levels - of noise, sounds and/or voices, includingbut notlimitedto amplifiedsounds, loudspeakers, sounds from audio sound systems, music, and/ or public address system, generated by the establishment shall not be audible to a person of normal hearing capacity from any residential property.

4. Permit Expiration: The Conditional Use Permit with Site . and Architectural Review and a Parking Modification Permit approved herein shall be valid,for one year from the date of final approval. Within this one- year period, building permits must be submitted to the City of Campbell.

5. Indemnity: By exercise of this permit approval, the applicant shall indemnify and defend the City of Campbell, its officers, officials, employees, and agents from any and all actions, liabilities, losses, and torts,' including attorney' s fees arising out of or connected unto any challenge to the decision of the City Council on this application.

6. Construction Hours/ Fines/ Stop Work Notice: Failure to comply with permitted working hours that result in verified complaints may result in the issuance of a Stop Work Notice issued to the project with cessation of work for a minimum of seven (7) days from the date of issuance and 'an administrative fine of up .to $1, 000. 00.

7. TimelyCompletion: Onceunderconstructionit shall be the obligationof the property owner and contractor to demonstrate continued progress on the project. In the event the building permit expires, the City may impose fines or exercise administrative remedies to compel timely completion of work.

8. Plan Revisions: Upon prior approval by the Community Development Director, all Minor Modifications to the approved project plans shall be included in the construction drawings submitted for Building Permit. Any modifications to the Building plan set during construction .shall require submittal of a Building Permit Revision and approval by the Building Official prior to Final Inspection.

13.b
Packet Pg. 173
Attachment: City Council Reso. No. 12875 (1308 Parsons Ave) Conditions of Approval
Conditional Use Permit with Site and Architectural Review and Parking Modification File No.: PLN72020764
Paae 3 of 8

9. Water Efficient Landscape Standards: This . project is subject to the California Model Water Efficient Landscape Ordinance ( MWELO). The building permit application submittal shall demonstrate compliance with applicable MWELO and landscaping requirements. .

10. Signage: . No signage is approved as part of the development application approved herein. All signage shall be installed and maintained consistent with the provision of the Sign -Ordinance, Chapter. 21. 30 of the Campbell Municipal Code.

11. Location of Mechanical Equipment: No roof -mounted mechanical. equipment ( i.e. air conditioning units, ventilation ducts or vents), shall be added to the existing building without providing screening of the mechanical equipment from public view and surrounding properties. The screening material and method shall be architecturally compatiblewith the buildingand requiresreview and approvalby the Community Development Director and Building Division prior to installation of such screening..

12. Outdoor Storage: No outdoor storageAs permittedon the subject property (not including marked business vehicles which may be parked overnight).

13. Business License: A valid City of Campbell business license shall be maintained for any business operating on the property at all times.

14. Property_ Maintenance: All exterior areas shall be maintained free from graffiti, trash, rubbish, postersandstickersplacedonthe property.

15. Parking & Driveway Areas: All parking and driveway areas shall be striped and maintained in compliance with the approved plans and Chapter 21.28 ( Parking and Loading) of the Campbell Municipal Code. All parking and driveway areas shall be regularly swept and cleaned to remove litter and debris.

16. Noise: Doors shall remain closed at all times the facility is in use. Regardless of decibel level, noise shall not obstruct the free use of neighboring uses so as to unreasonably interfere with the comfortable enjoyment of adjoining properties or tenant spaces.

17. Landscaping: All exterior landscaping, including trees, shall be maintained in good condition.

18. On-Site Lighting: On -site lighting shall be shielded away from adjacent properties and directed on site. The design and type of lighting fixtures and lighting intensity of any proposed exterior lighting for the project shall be reviewed and approved by the Community Development Director prior to installation of the lighting for compliance with all applicable Conditions of Approval, ordinances, laws and regulations. Lighting fixtures shall be of a decorative design to be compatible with the residential development and shall incorporate energy saving features.

13.b
Packet Pg. 174
Attachment: City Council Reso. No. 12875 (1308 Parsons Ave) Conditions of Approval
Conditional Use Permit with Site and Architectural Review and Parking Modification File No.: PLN- 2020- 64

19. Perimeter Fencing/ Walls: Fencing and walls surrounding the perimeter of the site shall be maintained in good condition.

20. Revocation of Permit: Non-compliance with these' standards, or any other conditions of approval specified herein or any standards, codes, or ordinances of the City of Campbell or State of California shall be grounds for consideration of revocation by the Planning Commission. In order to cover staff costs for a revocation hearing, the applicant shall be required to cover the time and materials for such action, not to exceed the cost of a Conditional Use Permit based on the fee schedule in effect at the time of the public hearing. In the event the Planning Commission finds that no wrongdoing has occurred, no payment shall be required.
31114: 111 IC1-11AAR L67T1

21. Permits Required: A building permit application shall be required. The building permit shall include Electrical/Plumbing/Mechanicalfees when such work is part of the permit.

22. Construction Plans: The conditions of Approval shall be stated in full on the cover sheet of construction plans submitted for building permit.

23. Plan Preparation: This project requires plans prepared under the direction and oversight of a California licensed Engineer or Architect. Plans submitted for building permits shall be "wet stamped" and signed by the qualifying professional person.

24. Size Of Plans: The minimum size of construction plans submitted for building permits shall be 24 in. X 36 in.

25. Site Plan: Application for building permit shall include a competent site plan that identifies property and proposed structures with dimensions and elevations as appropriate. Site plan shall also include site drainage details. Elevation bench marks shall be called out at all locations that are identified as "natural grade" and intended for use to determine the height of the proposed structure.

26. Title 24 Energy Compliance: California Title 24 Energy Standards Compliance forms shall be blue -lined on the construction plans. Compliance with the Standards shall be demonstrated for conditioning of the building envelope and lighting of the building.

27. Special Inspections: When a special inspection is required by C.B.C. Chapter 17, the architect or engineer of record shall prepare an inspection program that shall be submittedto the BuildingOfficialfor approvalpriorto issuanceof the buildingpermits, in accordance with C. B. 0 Chapter 1, Section 106. Please obtain City of Campbell, Special Inspection forms from the Building Inspection Division Counter.

28. Non -point Source Pollution: The City of Campbell, standard Santa Clara Valley Non - point Source Pollution Control Program specification sheet shall be part of plan

13.b
Packet Pg. 175
Attachment: City Council Reso. No. 12875 (1308 Parsons Ave) Conditions of Approval
Conditional Use Permit with Site and Architectural Review and Parking Modification File No.: PLN- 2020- 64

submittal. The specification sheet ( size 24" X 36") is available at the Building Division service counter.

29. Title 24 Accessibility — Commercial: On site general path of travel shall comply with the latest California Title 24 Accessibility Standards. Work shall include but not be limited to accessibility to building entrances from parking facilities and public sidewalks.

30. Title 24 Accessibility — Commercial: This change in use shall require the space to comply fully with California Access requirements Chapt. 11B 2016 CBC.

31. Approvals Required: The project requires the following agency approval or consultation prior to issuance of the building permit:

West Valley Sanitation District (378-2407)
Santa Clara County Fire Department ( 378-4010)

32. P. G.& E.: Applicant is advised to contact Pacific Gas and Electric Company as early as possible in the approval process. Service installations, changes and/ or relocations may require, substantial scheduling time and can cause significant delays in the approval process. Applicant should also consult with P.G. and E. concerning utility easements, distribution pole locations and required conductor clearances.

33. Storm Water Requirements: Storm water run- off from impervious surface created by this permitted project shall be directed to vegetated areas on the project parcel. Storm water shall not drain onto neighboring parcels.

FIRE DEPARTMENT

34. Limited Review: Review of this Developmental proposal is limited to acceptability of site access, water supply and may include specific additional requirements as they pertain to fire department operations, and shall not be construed as a substitute for formal plan review to determine compliance with adopted model codes. Prior to performing any work, the applicant shall make application, to, and receive from, the Building Department all applicable construction permits.

35. Combustible Waste: Please note that combustible waste material shall be comply with 2019 California Fire Code. Further review is required prior to any proposed tenant improvement.

36. Limited Review: This review shall not be construed to be an approval of a violation of the provisions of the California Fire Code or of other laws or regulations of the jurisdiction. A permit presuming to give authority to violate or cancel the provisions of the fire code or other such laws or regulations shall not be valid. Any addition to or alteration of approved construction documents shall be approved in advance. [ CFC, Ch. 1, 105. 3. 6]

PUBLIC WORKS DEPARTMENT

13.b
Packet Pg. 176
Attachment: City Council Reso. No. 12875 (1308 Parsons Ave) Conditions of Approval
Conditional Use Permit with Site and Architectural Review and Parking Modification File No.: PLN- 2020764
Paqe 6 of 8
The scope of this project trippers the requirement for Frontage Improvements as required by Campbell Municipal Code 11. 24. 040. The applicant will be required to apply for an Encroachment permit. to construct frontage improvements as listed below. These Conditionsof Approvalarea supplementto the Planningplansdated.

April29, 2021by W. CharlesPerry & Associates. The plans are not approved for construction. Further plan checking by Public Works will be required post entitlement.

37. Construction Drawings: The applicant shall submit the following permit applications, prior to,.or concurrent with the main Building permit application:
a. Encroachment Permit for Street Improvement Plans: The frontage improvements for the project shall be shown on a separate street improvement plan as detailed - here: https:// www.campbeIIca.gov/187/Street-Improvements b. Lot Line Adjustment: The Lot Line Adjustment documents required for this project shall be submitted for review by the City Surveyor as detailed here,: . https:// www. campbelIca. gov/ DocumentCenterNiew/ 432

38. Lot Line Adjustment:_ Prior to issuance of any grading or building permits for the site, the applicant shall fully complete a lot. line adjustment process. The applicant shall submit an application for approval by the City Engineer, pay the current application processingfees, processthe applicationwith Citystaff's commentsandfullycomplete the lot line adjustment.

39. Stormwater Pollution Prevention Measures: Prior to issuance of any grading or building permits, the applicant shall comply with the, National Pollution Discharge Elimination System (NPDES) permit requirements, Santa Clara Valley Water District.requirements, and the Campbell Municipal Code regarding stormwater pollution prevention. The primary objectives are to improve the quality and reduce the quantity of stormwater runoff to the bay.

Resources to achieve these objectives include Stormwater Best Management Practices Handbook for New Development and Redevelopment (" CA BMP Handbook") by the California Stormwater Quality Association (CASQA), 2003; Start at the Source:

A Design Guidance Manual for Stormwater Quality Protection (" Start at the Source") by the Bay Area Stormwater Management Agencies Association ( BASMAA), 1999; and UsingSiteDesignTechniquestoMee_ t DevelopmentStandardsforStormwaterQuality:

A Companion Document to Start at the Source (" Using Site Design Techniques") by BASMAA, 2003.

40. Trash Capture: Install trash capture inserts ( KriStar FloGard or approved equal) in all on - site storm drain catchbasins.

41. Street Improvement Agreements / Plans / Encroachment Permit / Fees I Deposits:

Prior to recordation of the Lot Line Adjustment), the applicant shall execute a street

13.b
Packet Pg. 177
Attachment: City Council Reso. No. 12875 (1308 Parsons Ave) Conditions of Approval
Conditional, Use Permit with Site and Architectural Review and Parking Modification File No.: PLN- 2020764

improvement agreement, cause plans for public street improvements to be prepared by a registered civil engineer, pay various fees and deposits, post security and provide insurance necessaryto obtain an encroachment permit for construction of the standard public street improvements, as required by the City Engineer. The plans shall include the following, unless otherwise approved by the City Engineer:
a. Show location of all existing utilities within the new and existing public right of way:
b. Installation of City standard curb, gutter, 5 foot attached sidewalk and. ADA compliantdriveway approaches.
c. Installation of City standard ADA curb ramps at: 1) the southeast corner of Camden Avenue and Parsons Avenue; and 2) the northeast corner of Sharp Avenue and ParsonsAvenue.
d. Installation of streetlights, conduits, conductors and . related facilities in accordancewiththe Cityof Campbell'sStreet LightingPolicies. e. Installation of traffic control, stripes and signs.
f. Construction of conforms to existing public and private improvements, as necessary.
g. Submit final plans in a digital format acceptable to the City.

42. Street Improvements Completed for Occupancy and Building Permit Final: Prior to allowing occupancy and/or final building permit signoff for any and/or all buildings, the applicant shall have the required street improvements installed and accepted by the City, and the design engineer shall. submit as -built drawings to the City.

43. Maintenance of Landscaping: Owner( s), current and future, are required to maintain the landscapedparkstripandtreewells inthe publicrightof way. Thisincludes, butis not limited to: trees, lawn, planting,S,
r
irrigation, etc. Trees shall not be pruned in a
manner that would not allow the tree to grow to a mature height.

44. Trash Enclosure Requirements:
a. NPDES Permit No. CAS612008 ( CRWQCB): C. 3. a. i. ( 7):

For all new development and redevelopment projects that are subject to the Permittee's planning, building, development, or othercomparablereview, but not regulated by Provision C.3, encourage the inclusion of adequate source control measures to limit pollutant generation, discharge, and runoff. These source control measures should include:
o Covered trash, food waste, and compactor enclosures.

13.b
Packet Pg. 178
Attachment: City Council Reso. No. 12875 (1308 Parsons Ave) Conditions of Approval
Conditional Use Permit with Site and Architectural Review and Parking Modification File No.: PLN72020- 64

b. Campbell Municipal Code . 14. 02. 030 " Stormwater Pollution Control/ Requirements":

The code states that no pollutants or water containing pollutants can be discharged into the City's storm drain system. Trash enclosures contain pollutants. During a rain event ( or during general cleaning) water washes over and into roofless -enclosures, collecting pollutants and discharging to the City's storm drain system. Applicants are required to show how new trash enclosures will not discharge pollutants into the storm drain system. One possible method is to provide a sanitary drain in the trash enclosure.
c. West Valley Sanitation District ( WVSD), the local sanitary. sewer agency, will require a roof on the enclosure if the trash enclosure drain connects to their sanitary sewer system.

13.b
Packet Pg. 179
Attachment: City Council Reso. No. 12875 (1308 Parsons Ave) Ginger McCrea, Trustee of
The Edward L. Bruce and Patricia A. Bruce 1993 Trust B dated 7-20-1993 And the Patricia A. Bruce Trust A dated 12-20-2007
4709 Corona Circle, Rocklin CA 95677
530-906-1222 cell

May 23, 2024

City of Campbell
Community Development Department
70 North First Street
Campbell CA 95008-1423

RE: 1308 Parsons Ave, Campbell CA 95008
Resolution No 12875

Request for Extension of Time
for Conditional Use Permit
under Resolution No. 12875

To whom it may concern:

I am requesting an extension of the Conditional Use Permit under Resolution No. 12875.

Due to a death in the family, we now have the property up for sale. I am requesting an additional two (2) years for this extension request to allow time to find a buyer and for the buyer to find a tenant.

Patricia A. Bruce is no longer a trustee. I am the current Trustee representing the owners of the property.

I thank you in advance for your consideration.

Ginger McCrea, Trustee

13.c
Packet Pg. 180
Attachment: Applicant Request (1308 Parsons Ave)

City
Council
Report

TITLE: Continuation of Updates to Campbell Municipal Code Section 3.20

RECOMMENDED ACTION

That the City Council continue this item to a date to be determined in the future.

Staff is recommending that the City Council continue this item to a date to be determined to consider amendments to Campbell Municipal Code (“CMC”) Section 3.20 on Procurement. The item will combine staff reports affecting the same section of the CMC that presents proposed changes to the City Manager’s contract award threshold and introduces procedures for Pass-Through Funded Consultant agreements.

Prepared by:

Jose Zetino, Administrative Analyst

Approved by:

Brian Loventhal, City Manager

Item: 14
Category: PUBLIC HEARINGS AND

INTRODUCTION OF

ORDINANCES
Meeting Date: August 20, 2024
14 Packet Pg. 181

City
Council
Report

TITLE: Public Hearing to Consider an Ordinance to Add Chapter 6.13 (Air Quality) to the Campbell Municipal Code to Establish New Air Quality and NOx Emissions Standards and Related Amendments to Chapter

2.08 (Officers), Chapter 6.10 (Nuisance Abatement and
Administrative Penalties) and Title 18 (Building Codes and Regulations) Serving to Clarify the Administrative Authority Over the New Air Quality and NOx Emissions Standards and Amend Related Electrification and Air Quality Standards and Supporting Defini tions. (Ordinance/Roll Call Vote)

RECOMMENDED ACTION

That the City Council introduce an Ordinance adding Chapter 6.13 (Air Quality), and amending Chapter 2.08 (Officers), Chapter 6.10 (Nuisance Abatement and Administrative Penalties), and Title 18 (Building Codes and Regulations) of the Campbell Municipal Code.

PURPOSE

The purpose of this item is to introduce amendments to the Campbell Municipal Code which serve to replace the City’s electrification requirements under its Building Reach Code – which are no longer enforceable – with new air quality regulations that focus on limiting NOx emissions in new construction projects and major remodels of existing structures.

BACKGROUND

On November 1, 2022, the City Council adopted a Reach Code that created higher environmental standards in building construction, by requiring all new construction and major remodels to be fully electric.

On May 9, 2024, the City of Campbell suspended enforcement of the electrification requirements of the Reach Code, following a ruling by the U.S. Court of Appeals for the Ninth Circuit that the plain text and structure of the Energy Policy and Conservation Act (EPCA) preempts state and local building codes concerning the energy use of natural gas appliances.

Item: 15
Category: PUBLIC HEARINGS AND

INTRODUCTION OF

ORDINANCES
Meeting Date: August 20, 2024
15 Packet Pg. 182
Air Quality Ordinance Page 2 of 5
On June 18, 2024, the City Council received a report regarding alternative options for implementing standards that limit natural gas usage and greenhouse gas emissions associated with new construction to meet the sustainability goals associated with the Reach Code . Council directed staff to move forward with an Ordinance using the Air Quality approach restricting NOx emissions, amending Title 6 (Health and Sanitation) of Campbell’s municipal code.

On July 24, 2024, staff hosted a virtual meeting with stakeholders to solicit feedback on the proposed updates. The meeting was attended by a total of 15 people, including Campbell residents and representatives from Silicon Valley Clean Energy, Carbon Free Silicon Valley, Acterra, SPUR, Menlo Spark, and Mothers Out Front. While the majority of feedback received was positive, supporting the effort to reduce emissions and improve public health, two members of the audience expressed concerns with the potential added cost for homeowners, liability for the City, and reliability of the grid. A summary of feedback is included in Attachment B (Summary of Comments from Public Meeting).

DISCUSSION

The following discussion is organized into three sections. The first section explains the relationship between this ordinance and the General Plan . The second discusses the relationship of the ordinance to BAAQMD’s approach to regulating NOx emissions. The third section serves to summarize the proposed air quality regulations and types of activities regulated.

I. Relationship to General Plan

The City has a responsibility to establish codes and regulations which serve in the best interests of public health, safety, and welfare of the community. Specific to preserving and protecting air quality through the regulation of NOx emissions , t he 2040 General Plan includes goals of improving air quality, promoting and enhancing overall health conditions for residents, promoting a comprehensive and diverse approach to community health and wellness, protecting citizens from hazardous materials, and promote community resilience. A full list of General Plan goals, policies, actions that support this ordinance are listed in Attachment C (General Plan Rele vant Goals, Policies, and Actions).

II. BAAQMD Approach to Air Quality Regulations

In March of 2023, BAAQMD adopted amendments to their Regulation 9, and Rules 4 and 6, to eliminate emissions of nitrogen oxides, or NOx, from residential and commercial natural gas furnaces and water heaters in the Bay Area by requiring new appliances to be zero -NOx. The proposed amendments to the Campbell Municipal Code follow the approach BAAQMD has taken, focusing on the negative health impacts of air pollution from building appliances.

15 Packet Pg. 183
Air Quality Ordinance Page 3 of 5
Studies show that NOx – along with the Particulate Matter (PM2.5) and Ozone formed because of NOx pollution – are all dangerous to human health . These pollutants are associated with impaired lung function, coughing wheezing, increased asthma attacks, cardiovascular harm, lower birth weight, increased emergency room and hospital admissions, increased risk of respiratory infections, and premature death.

Campbell is in a non-attainment area for Ozone at the federal level, and for both Ozone and PM2.5 at the state level. 1 By regulating NOx emissions, the City can reduce harm to public health , improve air quality, and assist in the transition to BAAQMD’s rules, which start to go into effect beginning in 2027.

III. Proposed Code Amendments

The proposed Section 6.13 – Air Quality prohibits NOx emissions from equipment being installed in any newly constructed building or substantial rebuild . This ordinance applies to water heaters, furnaces, ovens/ranges, and clothes driers . It does not apply to outdoor grills or portable heaters.

Limited Exemptions
The proposed code amendments recognize limited exceptions for certain types of businesses where operations or specific processes might be infeasible or present an unreasonable hardship , such as certain industrial processes or the cooking needs of restaurants. These limited exceptions would remain in any new regulations.

The Air Quality ordinance has the same exemptions that exist ed in the Reach Code as follows:

1. Dependent processes . Business or commercial activities that require the emission of NOx for specific operationally dependent processes, shall be allowed to emit NOx in exceedance of the limit established by Section 6.13.040 (NOx - emission regulations) for that process. Examples include, but shall not be limited to, metallurgy, glass blowing, pottery, research and development uses, and certain medical processes.

2. Commercial cooking . Commercial restaurants and similar commercial food preparatory facilities shall be permitted appliances that emit NOx in exceedance of the limit established by Section 6.13.040 (NOx -emission regulations) for food preparation. Examples include, but shall not be limited to, restaurants, bakeries, grocery stores, and commercial kitchens.

3. Cost prohibitive. Appliances that emit NOx in exceedance of the limit established by Section 6.13.040 (NOx -emission regulations) shall be permitted when it can be demonstrated that the ten-year life-cycle cost analysis of installing and using a compliant appliance will be fifty percent or greater than that that of using NOx emitting appliance. When estimating the life -cycle cost, all calculations will assume the purchase and use of all new appliances.

1 https://ww2.arb.ca.gov/aaqs-designation-tool
15 Packet Pg. 184
Air Quality Ordinance Page 4 of 5

4. Reconstruction after damage or destruction. A structure with appliances that emit NOx in exceedance of the limit established by Section 6.13.040 (NOx -emission regulations) which is involuntarily damaged or partially destroyed to the extent that the cost of restoration does not exceed seventy -five percent of the cost of construction of a comparable new structure (as determined by the Building Official) may continue to have NOx emitting appliances in exceedance of the limit established by Section 6.13.040 (NO x-emission regulations) provided that building permits are submitted for the reconstruction of the structure within twelve months of its involuntary damage or destruction.

These criteria will be used by the Building Official to determine if a limited exemption is warranted. Decisions by the Building Official may be appealed to the Community Development Director, and ultimately, the City Council.

Effective Date
The proposed Ordinance would take effect thirty (30) days following adoption.

FISCAL IMPACT
Requirements of the Ordinance will be verified through the City’s standard development review and building permit plan check process. Review of projects for compliance with the air quality regulations is not anticipated to result in additional staff time or permit costs.

Further, as enforcement of the Ordinance would be through a nuisance abatement, any time or costs Code Enforcement Department to remedy violations of the Ordinance will be partially offset by fines.

ALTERNATIVES

1. Take no action.

2. Propose amendments to the draft ordinance as appropriate.

3. Request staff to return with an alternative approach (i.e. Performance Standards), as previously discussed at the June 18, 2024, meeting.

Prepared by:

Tiffany Hudson, Environmental Program
Specialist
Reviewed by:
15 Packet Pg. 185
Rob Eastwood, Community
Development Director
Air Quality Ordinance Page 5 of 5
Approved by:

Brian Loventhal, City Manager
Attachment:
a. Draft Ordinance
b. Summary of Comments from Public Meeting
15 Packet Pg. 186
ORDINANCE NO.

BEING AN ORDINANCE OF THE CITY COUNCIL OF THE C ITY OF CAMPBELL AMENDING CHAPTER 2. 08 (OFFICERS) BY

CLARIFYING THE ROLE OF THE COMMUNITY DEVELOPMENT
DIRECTOR AND BUILD ING OFFICIAL, CHAPTER 6.10 (NUISANCE

ABATEMENT AND ADMINISTRATIVE PENALITIES) TO INCLUDE A

REFERENCE TO NEW AIR QUALITY REGULATIONS, ADDING
CHAPTER 6.13 (AIR QUALITY) TO ESTABLISH AIR QUALITY AND NOX EMISSIONS REGULATIONS, AND AMENDING TITLE 18
(BUILDING CODES AND REGULATIONS) TO REMOVE

REQUIREMENTS RELATED TO EL ECTRIFICATION AND

WOODBURNING APPLIANCES AND AMEND THE DEFINITION OF
SCOPE OF WORK OF THE CAMPBELL MUNICIPAL CODE. FILE NO.

PLN-2022-112.

WHEREAS, after notification and public hearing, as specified by law and after presentation by the Community Development Director, proponents and opponents, the hearing was closed.

WHEREAS, the Federal Clean Air Act requires the Federal Environmental Protection Agency to establish federal air quality standards to protect public health and public welfare and to regulate emissions of hazardous air pollutants.

WHEREAS, Nitrogen Dioxide, Ground-level Ozone, and Particulate Matter are three of the six criteria air pollutants explicitly addressed in the Federal Clean Air Act.

WHEREAS, the Clean Air Act requires the Environmental Protection Agency (EPA) to set National Ambient Air Quality Standards (NAAQS) for six common air pollutants, known as “criteria air pollutants”, which include Particulate Matter (PM10 and PM2.5), Ground-level Ozone (O3), Carbon Monoxide (CO), Sulfur Dioxide (SO2), Nitrogen Dioxide (NO2), and Lead (Pb).

WHEREAS, the Clean Air Act also addresses 178 Hazardous Air Pollutants (HAPs) which are known or suspected to cause cancer or other serious health effectives, such as reproductive effects or birth defects. Some examples include Benzene, Perchloroethylene, Methylene Chloride, Dioxins and Furans, Asbestos, Toluene, and Cadmium.

WHEREAS, Congress has found that the growth in the amount and complexity of air pollution brought about by urbanization, industrial development, and the increasing use of motor vehicles, has resulted in mounting dangers to the public health and welfare, including injury to agricultural crops and livestock, damage to and the deterioration of property, and hazards to air and ground transportation.

WHEREAS, Congress has found that air pollution prevention (that is, the reduction or elimination, through any measures, of the amount of pollutants produced or created at the source) and air pollution control at its source is the primary responsibility of States and local governments (Clean Air Act, 42 U.S.C. § 7401(a)(3)).

15.a
Packet Pg. 187
Attachment: Draft Ordinance (Air Quality Ordinance)
City Council Ordinance No.

PLN-2022-112 – Officers, Air Quality, Building Code Page 2 of 4

WHEREAS, pursuant to the California Clean Air Act Law, the California Air Resources Board (CARB) regulates mobile sources of pollution while local and regional authorities are responsible for controlling air pollution from other sources.

WHEREAS, Section 39002 of the California Health and Safety Code (HSC) recognizes local authority to set stricter standards than those set forth by law or by the state board for nonvehicular sources.

WHEREAS, much of the Greater Bay Area, including the City of Campbell, remains a nonattainment area that does not meet the federal air quality standards established to protect public health.

WHEREAS, Nitric Oxide and Nitrogen Dioxide (collectively NOx) react with volatile organic compounds (VOCs) in the presence of sunlight to form Ground-level Ozone (O3).

WHEREAS, NOx can also contribute to the formation of fine particulate matter (PM2.5) through a series of chemical reactions in the atmosphere.

WHEREAS, emissions from building appliances contribute significantly to NOx, and therefore O3 and PM2.5 that are present in the Greater Bay Area at levels that violate state and federal standards.

WHEREAS, by establishing standards and policies that reduce NOx emissions will also lead to a reduction in Ground-level Ozone and PM2.5.

WHEREAS, NOx gases can irritate the airways in the human respiratory system, leading to impaired lung function, increased asthma attacks, cardiovascular harm, lower birth weight, and increased ER and hospital admissions.

WHEREAS, Ground-level ozone can cause respiratory issues, exacerbate asthma, reduce lung function, and lead to other health problems. It also affects vegetation and ecosystems.

WHEREAS, PM2.5 can penetrate deep into the lungs and even enter the bloodstream, causing cardiovascular and respiratory diseases, as well as other health issues. It also contributes to visibility reduction and environmental degradation.

WHEREAS, the Bay Area Air Quality Management District approved rules on June 21, 2023, that outlaw the sale of NOx-emitting water heaters and furnaces in 2027 and 2029, respectively, in the Bay Area.

WHEREAS, preparing structures in the City of Campbell for the upcoming implementation of the Bay Area Air Quality Management District’s rules will promote efficiency and cost savings that will benefit Campbell residents and protect community health.

WHEREAS, Section 39002 of the California Health and Safety Code authorizes local agencies to establish air pollution standards that are stricter than statewide or federal standards.

15.a
Packet Pg. 188
Attachment: Draft Ordinance (Air Quality Ordinance)
City Council Ordinance No.

PLN-2022-112 – Officers, Air Quality, Building Code Page 3 of 4

WHEREAS, the subject Ordinance will add Chapter 6.13 (Air Quality) of the Campbell Municipal Code as set forth herein.

WHEREAS, the subject Ordinance will amend Title 18 (Building Codes and Regulations) and of the Campbell Municipal Code as set forth herein.

WHEREAS, while the subject Ordinance will remove Chapter 18.70 (Woodburning Appliances) the requirements of that section will be subsumed and continued to be implemented by the newly created Chapter 6.13 (Air Quality).

WHEREAS, the proposed amendments to the Campbell Municipal Code are consistent with goals, policies, and actions from the 2040 General Plan including, but not limited to, the following:

Conservation and Open Space (COS)

1. Goal COS-10: Improve air quality in Campbell and the region through reductions in air pollutants and greenhouse gas (GHG) emissions.

2. Action COS-10.e Continue implementation of the City’s Municipal Code Chapter 18.70, Woodburning Appliances, in order to improve and maintain air quality conditions in the City and enhance the health and quality of life of its citizens.

3. Policy COS-10.4 Require projects to adhere to the requirements of the Bay Area Air Quality Management District (BAAQMD), including standards related to fireplaces, wood stoves, heaters, dust control, and abatement measures.

4. Policy COS-10.8 Comply with regional, state, and federal standards and programs for control of all airborne pollutants and noxious odors, regardless of source.

Community Health and Wellness (CHW)

5. Policy CHW-2.1: Practice effective city leadership in order to promote and enhance overall health conditions for residents.

6. Goal CHW-2: Promote a comprehensive and diverse approach to community health and wellness.

7. Policy CHW-2.2 Consider the effects of planning decisions on the overall health and well-being of the community and its residents.

Safety (SA)

8. Goal SA-5: Protect citizens from hazardous materials.

9. Goal SA-7: Minimize risks to life, property, the economy, and the environment through climate adaptation strategies that enhance and promote Campbell’s community resiliency.

10. Action SA-7.c Periodically assess and monitor the effects of climate change and the associated levels of risk in order to adapt to changing climate conditions.

WHEREAS, NOx-emitting equipment has been shown to have a specific, adverse impact upon the public health and safety as evidenced by the following reports:

15.a
Packet Pg. 189
Attachment: Draft Ordinance (Air Quality Ordinance)
City Council Ordinance No.

PLN-2022-112 – Officers, Air Quality, Building Code Page 4 of 4

1. Gas appliances in California homes and buildings generate four times as much lung- damaging nitrogen oxide (NOx) pollution as the state's gas power plants, and roughly two thirds as much NOx as all the state’s passenger cars, according to a 2022 report by RMI, SPUR, and Sierra Club titled “Gas Appliances and Smog: California's Hidden Air Pollution Problem.”

2. “Effects of Residential Gas Appliances on Indoor and Outdoor Air Quality and Public Health in California,” a study by UCLA, found that gas appliances not only emit NOx and PM2.5 indoors, but also outdoors, and that these pollutants have been linked to various acute and chronic health effects, including respiratory illness, cardiovascular disease, and premature death. If all residential gas appliances were immediately replaced with clean alternatives, the reduction of outdoor NOx and PM2.5 would result in 354 fewer deaths, as well as 596 fewer cases of acute bronchitis, and 304 fewer cases of chronic bronchitis annually in California.

3. BMC Environmental Health published “Short term exposure to air pollution and mortality in the US: a double negative control analysis,” a research paper that concluded breathing PM2.5, and possibly O3 and NO2, even for a short time, can increase the risk of death from any cause, and that these risks are present even at pollution levels that are currently considered safe.

4. A report published by RMI, Mothers Our Front, Physicians for Social Responsibility, and the Sierra Club found that gas stoves emit numerous pollutants and peak indoor air pollution from gas stoves can reach levels that would be illegal outdoors per EPA standards. Children are particularly at risk for asthma, aggravated respiratory symptoms, irritated airways, lung infections, decreased lung function, and learning deficits.

5. “Fine particulate matter exposure during childhood relates to hemispheric-specific differences in brain structure,” a paper published by Environmental International, found that exposure to PM2.5 across the U.S. may be an important environmental factor influencing patterns of structural brain development in childhood.

6. BAAQMD conducted a study titled “Assessing Ambient Air Quality and Health Impacts from Natural Gas Building Appliances in the Bay Area,” citing the harmful impacts of exposure to NOx and PM2.5 and simulation modeling showing the significant reduction in pollution by prohibit the sale of NOx-emitting appliances beginning in 2027.

WHEREAS, the legislature of the State of California has, in Article XI, Section 7 of the California Constitution, conferred upon local governments the authority to adopt regulations designed to promote the public health, safety, and general welfare of its citizenry.

WHEREAS, adoption of the proposed Ordinance is considered a "project" under Section 15378(a)(1) of the California Environmental Quality Act (CEQA).

WHEREAS, the proposed Ordinance may be found exempt from environmental review under Section 15061(b)(3) of the California Environmental Quality Act (CEQA) in that there is no possibility that the proposed changes to the City’s Municipal Code may have a significant effect on the environment.

15.a
Packet Pg. 190
Attachment: Draft Ordinance (Air Quality Ordinance)
City Council Ordinance No.

PLN-2022-112 – Officers, Air Quality, Building Code Page 5 of 4

WHEREAS, the proposed amendments will not be detrimental to the public interest, health, safety, convenience, or general welfare of the city.

WHEREAS, the proposed amendments are internally consistent with other applicable provisions of the Campbell Municipal Code.

WHEREAS, in consideration of the adoption of the subject Ordinance, the City Council provided due consideration of all evidence presented and provided in the entire administrative record.

THEREFORE, the City Council of the City of Campbell does ordain as follows:

Section 1. Section 2.08.1 20 ( Community Development Director ) of the Campbell Municipal Code is hereby amended to read as follows with underlining ( underlining) indicating new text and strikeouts (strikeouts) indicating deleted text:

2.08.120 Community Development Director.

The Community Development Director shall organize and supervise the operation of the Community Development Department. plan for the orderly development of the City.The Community Development Director He/she or theirhis/her designated representative shall be secretary to Planning Commission. The Community Development Director He/she shall plan for the orderly development, subdivision, and use of properties in the City. The Community Development Director shall administer and enforce development, subdivision, and land use regulations and other City regulations, as set forth in this code.and direct the formulation and administration of subdivisions, zoning regulations, and the enforcement of sign and zoning regulations. He/she shall coordinate, with any planning consultant, all planning services of the City.

Section 2. Section 2.08.130 (Building Official) of the Campbell Municipal Code is hereby amended to read as follows with underlining (underlining) indicating new text and strikeouts (strikeouts) indicating deleted text:

2.08.130 Building Official.

The Building Official shall organize and supervise the operation of the bBuilding Division of the Community Development Departmentand housing code programs. The Building Official or their designated representative shall be the secretary to the Building Board of Appeals. The Building Official He/she shall administer the enforcement of the California Building Code direct the building inspection program and other City regulations, as set forth in this code.

Section 3. Subsection (a)(6) (Q) of Section 6.10. 020 (Nuisance Conditions) of the Campbell Municipal Code is hereby amended to read as follows with underlining (underlining) indicating new text:
(Q) A violation of any of the provisions of Campbell Municipal Code Chapters 5.24, 5.28, 5.29,

5.30, 5.36, 5.48, 5.58, 6.11, 6.12, 6.13, 6.19, 6.20, 6.30, 6.40, 8.34, 8.38, 8.40, 8.42, 11.04, 11.08,

11.12, 11.16, 11.32, 13.04, or 14.02,
Section 4. Chapter 6.13 (Air Quality) is hereby adopted as set forth in Exhibit A.

15.a
Packet Pg. 191
Attachment: Draft Ordinance (Air Quality Ordinance)
City Council Ordinance No.

PLN-2022-112 – Officers, Air Quality, Building Code Page 6 of 4

Section 5. Section 18.26.060 (Electrification) of the Campbell Municipal Code is hereby deleted in its entirety.

Section 6. Section 18.26.070 (Limited exemptions from electrification standards.) of the Campbell Municipal Code is hereby deleted in its entirety.

Section 7. Section 18.32.010 Definition of “Scope of Work.” of the Campbell Municipal Code is hereby amended to read as follows with underlining (underlining) indicating new text and strikeouts (strikeouts) indicating deleted text:

18.32.010 Definition of "New Structure Using Portions of the Original StructureScope of Work." A project shall be submitted as a "remodel" or "remodel and addition," or a "remodel of an accessory structure to create an accessory dwelling unit" (or similar scope of work) shall instead be considered and defined as a "new structuredwelling using portions of the original structure" when at least three of the following criteria are satisfied:
(1) The valuation of the proposed work exceeds one hundred eighty -five thousand dollars (valuation calculated using established valuations from the most current RS means - square foot and estimating software and book series and modified by the Building Division); (2) Seventy-five percent or more of the existing roof framing (area) is proposed to be removed. Existing roof covered by a new roof shall be considered as removed for the purposes of this calculation; (3) Seventy-five percent or more of the existing exterior walls (lineal footage of wall length) are removed, altered, filled in, or rebuilt. In no event shall new exterior walls exceed more than seventy -five percent of the length of the existing exterior w alls as determined by the building official. Nonconforming exterior walls shall not be included in the twenty-five percent remaining calculation (this subsection shall not apply to a proposed conversion of an accessory structure to an accessory dwelling unit); (4) Seventy-five percent or more of the existing interior walls (lineal footage of wall length) are removed, altered, filled in, or rebuilt. In no event shall new interior walls exceed more than seventy -five percent of the length of the existing interior walls as determined by the building official.

Section 8. Chapter 18.70 (Woodburning appliances.) of the Campbell Municipal Code is hereby deleted in its entirety.

Section 9. If any section, sentence, clause, phrase, word , or other provision of this Ordinance is for any reason held to be unconstitutional or otherwise invalid, such holding shall not affect the validity of the remaining sections, sentences, clauses, phrases, words or other provisions of this Ordinance, or the validity of this Ordinance, shall stand notwithstanding the invalidity of any section, sentence, clause, phrase, word or other provision.

Section 10. The proposed Ordinance is exempt under Section 15061(b)(3) of the California Environmental Quality Act (CEQA) as there is no possibility that the proposed changes to the City’s Municipal Code may have a significant effect on the environment.

Section 11. The City Council further finds and determines that the proposed Ordinance is consistent with the goals, policies, and actions of the 2040 General Plan.

15.a
Packet Pg. 192
Attachment: Draft Ordinance (Air Quality Ordinance)
City Council Ordinance No.

PLN-2022-112 – Officers, Air Quality, Building Code Page 7 of 4

Section 12. That this Ordinance shall become effective thirty (30) days following its passage and adoption and shall be published, or summary thereof, one time within fifteen (15) days upon passage and adoption in the Metro Silicon Valley, a newspaper of general circulation for the City of Campbell, County of Santa Clara.

PASSED AND ADOPTED this _______ day of ________________, 202 4, by the following roll call vote:

AYES: COUNCILMEMBERS:

NOES: COUNCILMEMBERS:

ABSENT: COUNCILMEMBERS:

ABSTAIN: COUNCILMEMBERS:

APPROVED:

Susan M. Landry, Mayor

ATTEST:

Andrea Sanders, City Clerk

15.a
Packet Pg. 193
Attachment: Draft Ordinance (Air Quality Ordinance)
Exhibit A

Chapter 6.13 AIR QUALITY

6.13.010. Purpose and findings.

A. The purpose of this Chapter is to protect public health and welfare by establishing objective, written public health and safety standards that enhance air quality conditions and reduce greenhouse gas emissions.

B. Much of the Greater Bay Area, including the City of Campbell, remains a nonattainment area that does not meet the federal air quality standards established to protect public health.

C. Exposure to NOx has been linked to coughing, wheezing, difficulty breathing, asthma, and increased susceptibility to respiratory infections.

D. Establishing standards and policies that reduce NOx emissions will also lead to a reduction in Ground - level Ozone and Particulate Matter which have been found to be harmful to public health.

E. The regulations of this Chapter are established under the authority of local jurisdictions to set stricter standards than those set forth by law or by the state board for nonvehicular sources (Section 39002 of the California Health and Safety Code).

F. The regulations of this Chapter are further established pursuant to the City’s police power authority to protect the public health, safety, and welfare.

6.13.020. Burning of specific materials prohibited.

It is unlawful to burn garbage, plastics, rubber, paints, solvents, oil, treated wood products, particle board, glossy or treated paper, coal, or any other material that produces noxious or toxic emissions.

6.13.030. Fireplaces.

Fireplaces, including gas or woodburning fireplaces, shall not be replaced except when certified to meet or exceed the United States Environmental Protection Agency’s (U.S. EPA) New Source Performance Standards (NSPS).

6.13.040. NOx-emission regulations.

A. Applicability. The requirements of this section apply to all projects meeting the definition of a newly constructed structure, or a new structure reusing portions of the existing structure, established after the effective date of this Ordinance.

B. NOx-emission limit. NOx-emissions from regulated appliances, including space heaters (including furnaces and fireplaces), water heaters (including boilers), cooking appliances (including stoves and ovens), and clothes dryers, shall not exceed 0.0 nanograms of nitrogen oxides (NOx) per joule of heat and/or light output.

C. Compliance. The requirements of this Section shall be verified by one of the two following methods:
a. Appliance Specifications. Manufacturers of regulated appliances shall either provide documentation demonstrating the appliance is powered exclusively by electricity or provide documentation certifying that their appliance does not exceed the NOx-emission limit based on performance data from standardized testing procedures specific to the type of appliance (e.g., American National Standard for Household Cooking Appliances Z21.1, ANSI Z21.1, for gas-fired appliances).
b. Testing. NOx-emissions shall be measured in accordance with the U.S. Environmental Protection Agency's Method 7E: Determination of Nitrogen Oxides Emissions from Stationary Sources (Instrumental Analyzer Procedure).

D. Exceptions. Outdoor equipment and appliances (i.e., barbeque grills) that utilize a 5 gallon or smaller gas tank, and emergency equipment, shall not be subject to the requirements of this Section.

6.13.050. Limited exemptions from NOx-emission regulations.

A. Purpose. The City recognizes certain services and/or operations may be rendered infeasible if required to comply with the NOx-emission regulations established by Section 6.13.040 (NOx-emission regulations). In such circumstances, a limited exemption from the NOx-emission regulations

15.a
Packet Pg. 194
Attachment: Draft Ordinance (Air Quality Ordinance)
City Council Ordinance No.

PLN-2022-112 – Officers, Air Quality, Building Code Page 2 of 4

established by Section 6.14.040 (NOx-emission regulations) may be warranted. The purpose and intent of this section is to outline the regulations for when a limited exemption from the NOx-emission regulations may be granted.

B. Exemption Process. The City shall not approve any request for a limited exemption from the NOx- emission regulations, as set forth in Section 6.13.040 (NOx-emission regulations), except upon a complete and duly filed application on the then-current form prepared by the city and accompanied by a filing fee, if established, in compliance with the City's schedule of fees and charges.

C. Review Criteria. The applicant always bears the burden to demonstrate why a limited exemption should be granted. The following criteria shall be used by the Building Official to determine if there is an operational necessity that warrants a limited exemption from the NOx-emission regulations, as set forth in Section 6.13.040 (NOx-emission regulations).

1. Dependent processes. Business or commercial activities that require the emission of NOx for specific operationally dependent processes, shall be allowed to emit NOx in exceedance of the limit established by Section 6.13.040 (NOx-emission regulations) for that process.

Examples include, but shall not be limited to, metallurgy, glass blowing, pottery, research and development uses, and certain medical processes.

2. Commercial cooking. Commercial restaurants and similar commercial food preparatory facilities shall be permitted appliances that emit NOx in exceedance of the limit established by Section 6.13.040 (NOx-emission regulations) for food preparation. Examples include, but shall not be limited to, restaurants, bakeries, grocery stores, and commercial kitchens.

3. Cost prohibitive. Appliances that emit NOx in exceedance of the limit established by Section

6.13.040 (NOx-emission regulations) shall be permitted when it can be demonstrated that the ten-year life-cycle cost analysis of installing and using a compliant appliance will be fifty percent or greater than that that of using NOx emitting appliance. When estimating the life- cycle cost, all calculations will assume the purchase and use of all new appliances.

4. Reconstruction after damage or destruction. A structure with appliances that emit NOx in exceedance of the limit established by Section 6.13.040 (NOx-emission regulations) which is involuntarily damaged or partially destroyed to the extent that the cost of restoration does not exceed seventy-five percent of the cost of construction of a comparable new structure (as determined by the Building Official) may continue to have NOx emitting appliances in exceedance of the limit established by Section 6.13.040 (NOx-emission regulations) provided that building permits are submitted for the reconstruction of the structure within twelve months of its involuntary damage or destruction.

D. Electric Service Required. In the event a limited exemption is granted, electric service will be required to any location where NOx emitting appliances are to be installed. The exact type and placement of electrical service and outlets in proximity to locations where NOx emitting equipment is installed shall be subject to the satisfaction and discretion of the Building Official. The requirement to provide electrical service in areas where NOx emitting equipment is installed serves to further the purpose of this Chapter by facilitating the more expeditious removal and replacement of NOx-emitting equipment, thereby reducing NOx emissions.

E. Decision. The Building Official shall notify the applicant of the decision rendered electronically through the City's online permitted system, by email, or by first class mail.

F. Revocation. The Building Official may revoke a limited exemption if the criteria used to grant the limited exemption may no longer be made.

G. Appeals from Building Official Decision. The applicant or any interested person or entity may file an appeal to the Community Development Department of any decision made by the Building Official in compliance with this chapter. The appeal shall be filed within ten days of the Building Official's decision, with the City Clerk in writing and accompanied by a filing fee in compliance with the city's schedule of fees and charges. The Community Development Director, or Community Development Director's designee, in his or her discretion, shall determine whether to affirm, set side, or modify the Building Official's decision appealed therefrom based on a review of the same criteria used by the

15.a
Packet Pg. 195
Attachment: Draft Ordinance (Air Quality Ordinance)
City Council Ordinance No.

PLN-2022-112 – Officers, Air Quality, Building Code Page 3 of 4

Building Official. Thereafter, the appellant shall be notified of the Community Development Director's decision.

H. Appeals from Community Development Director Decision. The applicant or any interested person or entity may file an appeal to the City Council of any decision made by the Community Development Director in compliance with this chapter. The appeal shall be filed within ten days of the Community Development Director's decision, with the City Clerk in writing and accompanied by a filing fee in compliance with the city's schedule of fees and charges. The City Council, in their discretion, shall determine whether to affirm, set side, or modify the Community Development Director's decision appealed therefrom based on a review of the same criteria used by the Community Development Director. Thereafter, the appellant shall be notified of the decision.

6.13.060. Interpretation of provisions.

This section provides rules for resolving questions about the meaning or applicability of provisions of this Chapter. The provisions of this section are intended to ensure consistent interpretation and application of the requirements of this Chapter with other sections of the Campbell Municipal Code and General Plan, and to the extent necessary, to provide authority to temporarily suspend the enforcement of, or harmonize the application of, the provisions of this Chapter with federal and state law, or relevant court decisions.

A. Authority. The Building Official shall have the responsibility and authority to interpret the meaning and applicability of all provisions and requirements of this Chapter.

B. Rules of Interpretation.

1. Minimum requirements. The provisions of this Chapter shall be strictly interpreted and applied as minimum requirements (unless stated as maximums) for the promotion of public health, safety, convenience, and general welfare.

2. Terminology. When used in this Chapter, the words "shall," "will," "is to," and "are to" are always mandatory. "Should" is not mandatory but is strongly recommended; and "may" is permissive. The present tense includes the past and future tenses; and the future tense includes the present. The singular number includes the plural number, and the plural the singular, unless the natural construction of the word indicates otherwise. The words "include," "includes," and "including" mean "including but not limited to..." and the word "used" includes the words "arranged for, designed for, occupied, or intended to be occupied for." C. Request for Interpretation. The request for an interpretation or determination shall be made to the Building Official, shall include all information required by the Building Official, and the fee established by the City's fee resolution.

6.13.070. Enforcement.

Violations of the requirements of this Chapter are hereby declared a public nuisance a subject to the policies, procedures, and penalties of other public nuisances as defined and regulated by Chapter 6.10 (Nuisance Abatement and Administrative Penalties) of the Campbell Municipal Code.

6.13.080. Severability of provisions.

If any provision or clause of this Chapter or the application thereof is held to be invalid, such invalidity shall not affect the other provisions or applications of this Chapter which can be given effect without the invalid provision or application, and to this end, the provisions of this Chapter are declared to be severable.

6.13.090. Definitions.

As used in this chapter, the following terms shall have the meanings set forth below. Definitions contained in this Section shall be arranged in alphabetical order. “Appliance.” (See “Powered appliance”).

15.a
Packet Pg. 196
Attachment: Draft Ordinance (Air Quality Ordinance)
City Council Ordinance No.

PLN-2022-112 – Officers, Air Quality, Building Code Page 4 of 4

“Boiler(s)” means any combustion equipment used to heat water or produce steam and that is not exclusively used to produce electricity for sale. For the purposes of this definition, a boiler does not include any waste heat recovery boiler that is used to recover sensible heat from the exhaust of a combustion turbine or any unfired waste heat recovery boiler that is used to recover sensible from the exhaust of any combustion equipment.
“Cooking appliance” means a powered appliance used to cook food, such as stoves and ovens. “Clothes dryer” means a powered appliance used to remove moisture from clothing, fabrics and other textiles, typically through a tumble-type drum with forced air circulation. “Established” means the date a building permit has been submitted to, accepted by, the City of Campbell with all fees required for permit intake review having been paid. “Emergency equipment” means equipment or appliances that are specifically designed, designated, and utilized to respond to urgent and unforeseen situations that pose immediate threats to life, property, or the environment. Examples of emergency equipment include, but are not limited to, emergency generators used to provide temporary power during power outages, emergency water pumps used to remove water in flooding situations, and fire pumps used to provide water pressure for fire protection systems. “Installed” means the placing, anchoring, or mounting of an appliance within a building or structure. “Nitrogen oxides” or “NOx” means the sum of nitrogen oxide (NO) and nitrogen dioxide (NO2), collectively expressed as nitrogen dioxide.
“Newly constructed structure” means a structure that has never been used or occupied for any purpose. “NOx emitting appliance” means any appliance that emits more than 0.0 nanograms of nitrogen oxides (expressed as NOx) per joule of heat output.
“Noxious or toxic emissions” means any gaseous or particulate byproducts of combustion that are harmful or hazardous to human health, animal life, or the environment. This includes, but is not limited to, emissions that contain nitrogen oxides (NOx), carbon monoxide (CO), sulfur dioxide (SO2), volatile organic compounds (VOCs), heavy metals, dioxins, and furans.
“New structure reusing portions of the original structure” shall mean the same as set forth in Chapter

18.32 (Determination of scope of work) of the Campbell Municipal Code. “Powered appliance” means a device used to perform a specific task using a source of energy or power that is not manual human effort.
“Regulated appliances” means space heaters (including furnaces and fireplaces), water heaters (including boilers), cooking appliances (including stoves and ovens), and clothes dryers. “Space heater(s)” means a powered appliance such as a furnace or fireplace used to heat a designated area or space within a building to raise the temperature of air. “Water heater(s)” means a powered appliance, such as boilers, used to raise the temperature of water. “Zero NOx emitting appliance” means any appliance that emits no more than 0.0 nanograms of nitrogen oxides (expressed as NOx) per joule of heat output.

15.a
Packet Pg. 197
Attachment: Draft Ordinance (Air Quality Ordinance)
Comments in Support:
• Although Campbell is a small city, this ordinance may inspire others to follow and provide a model to replicate. Doing things on a small scale can help move the needle forward.
• Air Quality ordinances are a strong way to reduce emissions – BAAQMD is already moving in this direction with their new rules. Local ordinances can help with that transition.
• Public health should be prioritized over individual preferences. Asthma and heart disease are major concerns. Gas stoves create and exacerbate health issues, especially for children.
• Air pollution shouldn’t be an individual choice – everyone is harmed by air pollution. • One advantage of electric equipment is that it can be combined with solar and battery. Installing electric appliances with battery backup adds resilience to the grid.
• The exemption for restaurants is necessary given the current costs of commercial induction appliances. There’s hope of including commercial regulations as prices of electric alternatives decrease.
• Incentives from SVCE and others help cover the costs of electrifying existing homes. • Heat pump technology continues to improve and requires much less energy than earlier equipment models.
• Space and water heaters last for many years. Acting now reduces large amount of emissions overtime.

Comments not in Support:
• There were concerns about the rush to electrify everything and remove natural gas, especially with power outages.
• Campbell should wait for CARB or BAAQMD to set standards and not be in front of the issue or risk litigation. It’s not a good use of staff time or City resources to pursue this.
• This ordinance would place an additional burden on homeowners who are doing a major remodel to an existing home. This ordinance could impact affordable housing.
• If electricity is the cheaper option, developers will build using all-electric appliances without regulation. For existing homes, residents should be able to keep appliances.

15.b
Packet Pg. 198
Attachment: Summary of Comments from Public Meeting (Air Quality Ordinance)

City
Council
Report

TITLE: That the City Council Adopt an Ordinance to Extend Ordinance No. 2313 Which Established Urgency Measures to Implement Senate Bill No. 684 (2023). (Ordinance/Roll Call Vote)

RECOMMENDED ACTION

That the City Council adopt an Ordinance to extend Interim Ordinance No. 2313 which established urgency measures to implement Senate Bill No. 684 (2023).

BACKGROUND

On June 18, 2024, the City Council adopted Interim Ordinances serving to clarify local standards and permit processes to comply with Senate Bill No. 684 (SB 684) and Senate Bill No. 4 (SB 4) until such time permanent standards can be developed.

On July 16, 2024, the City Council adopted a revised Interim Ordinance for SB 684 and extended the effectiveness for the Interim Ordinance for SB 4 for 10 months and 15 days.

DISCUSSION

The subject Ordinance will extend the effectiveness of the interim standards for SB 684 (2023) as previously presented and established by City Council Ordinance No. 2313 for 10 months and 15 days, or until superseded by adoption of permanent standards, whichever comes first.

During this time, Staff intends to prepare and return with permanent standards for consideration as part of an update to the City’s Multi -Family Development and Design Standards that account for best practices identified from other communities and from the review of projects processed during the effective implementation of the Interim Ordinance.

ALTERNATIVES

Take no action . Should the Council take no action on the subject item, the Interim Ordinances will expire on August 30, 2024. Staff does not recommend pursuing this alternative as it would remove interim standards for the processing of SB 684 (2023) Item: 16
Category: PUBLIC HEARINGS AND

INTRODUCTION OF

ORDINANCES
Meeting Date: August 20, 2024
16 Packet Pg. 199
Ordinance Extending SB 684 Page 2 of 2
projects until such time permanent standards may be established.

FISCAL IMPACT
There is no fiscal impact associated with the subject item.

ENVIRONMENTAL DETERMINATION
Staff recommends that the City Council find that the proposed Ordinance is categorically exempt under the California Environmental Quality Act (CEQA) pursuant to Section 15601(b)(3) in that there is no possibility that the proposed extension of urgency measures serving to implement SB 684 (2023) may have a significant effect on the environment.

Prepared by:

Stephen Rose, Senior Planner
Reviewed by:

Rob Eastwood, Community
Development Director
Approved by:

Brian Loventhal, City Manager
Attachment:
a. Draft Ordinance
b. SB 684 Summary
16 Packet Pg. 200

Ordinance No. _____

BEING AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF CAMPBELL EXTENDING URGENCY MEASURES TO IMPLEMENT SENATE BILL NO. 684 (2023) (FILE NO. PLN-2024-69)

WHEREAS, on October 11, 2023, the Governor of the State California signed into law Senate Bill No. 684 (Caballero), to "add Sections 65852.28, 65913.4.5, and 66499.41 to the Government Code, relating to land use ," which generally allows the streamlined approval processes for small housing development projects of ten or fewer residential units on urban lots under 5 acres. The bill requires local agencies to review applications that comply with the bill's development requirements through a ministerial process, eliminating the need for discretionary hearings. Additionally, local agencies are permitted to apply objective development and design standards where applicable.

WHEREAS, certain standards, requirements, and permitting procedures of the City of Campbell Municipal Code, are inconsistent with the provisions authorized by Senate Bill No. 684 (2023).

WHEREAS, the provisions of Senate Bill No. 684 (2023) went into effect on July 1, 2024, and without locally codified standards, requirements, and implementation procedures, the law presents a current and immediate threat to the public peace, health, safety, and welfare, in that certain existing standards, requirements, and permitting procedures of the City of Campbell Municipal Code are in conflict with Senate Bill No. 684 (2023) and could create confusion and hinder the type of housing development and activities the law authorizes.

WHEREAS, pursuant to Section 65858 of the Government Code and Section

21.60.090 of the Campbell Municipal Code, the City Council may take appropriate action to adopt urgency measures as an interim ordinance.

WHEREAS, on Ju ly 16 , 2024, the City Council adopted an interim ordinance to implement Senate Bill No. 684 (Ordinance No. 2313).

WHEREAS, the City is undertaking a study to update its current zoning code provisions to conform to the changes in the State law, which shall be completed within a reasonable time, not to exceed 10 months and fifteen days from the adoption of this interim ordinance, or until it is superseded by adoption of superseding ordinance, whichever comes first.

WHEREAS, this Ordinance serves to extend standards, requirements, and permitting procedures to allow for orderly housing development and activities authorized by Senate Bill No. 684 (2023) while protecting the public peace, health, safety, or welfare in the City of Campbell as set forth by the interim ordinance (Ordinance No. 2313).

WHEREAS, it is not the intent of this Ordinance to adopt permanent standards, requirements, or permitting procedures. The City Council reserves the right to adopt permanent standards, requirements, and permitting procedures consistent with Senate Bill No.684 (2023) that will supersede those contained in th e interim ordinance (Ordinance No. 2313).

16.a
Packet Pg. 201
Attachment: Draft Ordinance (Ordinance Extending SB 684)

WHEREAS, it is not the intent of this Ordinance to deny or delay the approval of housing development projects that are in compliance with Senate Bill No. 684 (2023).

WHEREAS, considering the foregoing findings, the City Council further finds that there is a current and immediate threat to the public health, safety, or welfare, and that adherence to existing standards, requirements, and permitting procedures in conflict with this ordinance would result in that threat to public health, safety, or welfare.

WHEREAS, adoption of this Ordinance may be found categorically exempt under the California Environmental Quality Act (CEQA) pursuant to Section 15061(b)(3) of the California Environmental Quality Act (CEQA) in that there is no possibility that the proposed extension of urgency measures serving to implement SB 684 (2023) may have a significant effect on the environment.

NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF CAMPBELL DOES HEREBY ORDAIN AS FOLLOWS:

SECTION 1 (SEVERABILITY): If any section, subsection, sentence, clause, or phrase of this Ordinance is for any reason held to be invalid or unconstitutional by a decision of any court of competent jurisdiction, such decision shall not affect the validity of the remaining portions of the Ordinance. The City Council hereby declares that it would have passed this interim ordinance and each and every section, subsection, sentence, clause, or phrase not declared invalid or unconstitutional without regard to whether any portion of the ord inance would be subsequently declared invalid or unconstitutional.

SECTION 2 (CEQA): Extension of the interim ordinance is categorically exempt under the California Environmental Quality Act (CEQA) pursuant to Section 15061(b)(3) of the California Environmental Quality Act (CEQA) in that there is no possibility that the proposed extension of urgency measures serving to implement SB 684 (2023) may have a significant effect on the environment.

SECTION 3 (STATE LAW). Any provision of this Ordinance which is inconsistent with Senate Bill No. 4 (2023) shall be interpreted in a manner as to achieve compliance with state law.

The provisions of this Ordinance shall supersede and take precedence over any inconsistent provision of the Campbell Municipal Code to that extent necessary to effect the provisions of this Ordinance for the duration of its effectiveness.

SECTION 4 (REPEAL): If Senate Bill No. 684 (2023) is repealed or otherwise rescinded by the California State Legislature or by the People of the State of California, this Ordinance shall cease to be in effect.

SECTION 5 (PUBLICATION): The City Clerk shall cause this Ordinance to be published at least once in a newspaper of general circulation within 15 days after its adoption in accordance with Government Code Section 36933.

16.a
Packet Pg. 202
Attachment: Draft Ordinance (Ordinance Extending SB 684)

SECTION 6 (EFFECTIVENESS): Interim Ordinance No. 231 3 is hereby extended for 10 months and fifteen days , or until it is superseded by adoption of superseding ordinance, whichever comes first.

PASSED AND ADOPTED this _____ day of ____________, 2024 by the following roll call vote:

AYES: Councilmembers:

NOES: Councilmembers:

ABSENT: Councilmembers:

APPROVED:

Susan M. Landry, Mayor
ATTEST:

Andrea Sanders, City Clerk

16.a
Packet Pg. 203
Attachment: Draft Ordinance (Ordinance Extending SB 684) SB 684 - Streamlined App. Processes
(Gov. Code 65852.28, 65913.4.5, & 66499.41)

SB 684 (2023) entitled, “Streamlined Approval Processes: Development projects of 10 or fewer residential units on urban lots under 5 acres”, will require the City to ministerially consider (without a public hearing) applications for projects that meet the following criteria:

• Property Requirements:
o The lot is not larger than 5 acres;
o The lot is zoned for multifamily residential development; o The lot is substantially surrounded by qualified urban uses; o The lot has not exercised the Ellis Act in the past 15-years; and o The lot is not in a flood zone, fire hazard area, earthquake zone, etc.

• Project Requirements:
o Results in ≤ 10 lots
o Results in ≤ 10 units
o Does not demolish or alter any of the following housing types:
▪ Units restricted to low, very-low, extremely low-income levels; ▪ Units subject to any form of local rent or price control; or ▪ Units occupied by tenants within the past 5 years.

• Density Requirements:
o May result in ≤ 30 units/acre; and
o Based on Designation as a Housing Opportunity Site:
▪ If designated: The project will result in at least as many total units and as many low- and very low-income units as projected by the Housing Element for the parcel.
▪ If not designated: The project will result in at least as many units as the maximum allowable density for the parcel.

• Development Standard Requirements:
o Meets all applicable objective standards that do not:
o Prohibit the creation of lots that are 600 sq. ft. or larger. o Impose floor area ratio standards less than any of the following:
▪ 3-7 units: 1.0 FAR
▪ 8 to 10 units: 1.25 FAR
o Impose minimum parking requirements that exceed the following:
▪ 1 space per unit; or
▪ 0 spaces per unit (when located within ½ mile of major transit stop or high-quality transit corridor, or within one block of a car share vehicle) o Impose setbacks inconsistent with the following:
▪ Side or rear setbacks >4 feet from the original lot line(s) ▪ Any setback between buildings except as required in the California Building Code

16.b
Packet Pg. 204
Attachment: SB 684 Summary (Ordinance Extending SB 684)

City
Council
Report

TITLE: Public Hearing to Consider the Adoption of an Affordable Housing Nexus Study Serving to Support the Establishment of a New Housing In-Lieu Fee and Commercial Linkage Fee, Amendments to Chapter

21.24 (Inclusionary Housing Ordinance) of the Campbell Municipal Code Serving to Clarify Existing Provisions and Implement Program H-1A of the 2023-2031 Housing Element by Lowering the Inclusionary Housing Unit Threshold (From 10 Units to 5 Units) and Changing the Method in Which Housing In -Lieu Fees and Requir ements Are Calculated, the Establishment of Title 19 (Housing) of the Campbell Municipal Code Serving to Establish General Provisions and Provisions Related to the City’s Housing Program, the Establishment of Rent Control for Below-Market Rate Housing, the Establishment of a Commercial Linkage Fee, and the Implementation of State - Mandated Tenant Protections (Resolutions/Ordinances/Roll Call Vote)

RECOMMENDED ACTION

That the City Council take the following action: (1) Adopt a Resolution, adopting an Affordable Housing Nexus Study; (2) Take first reading, introducing an Ordinance, amending Chapter 21.24 (Inclusionary Housing Ordinance) of the Campbell Municipal Code; (3) Take first reading, introducing an Ordinance, establishing Title 19 (Housing) of the Campbell Municipal Code; and (4) Adopt a Resolution, amending the City’s fee schedule to establish a new in-lieu housing fee and commercial linkage fee.

EXECUTIVE SUMMARY

This item serves to present four items:

1) Affordable Housing Nexus Study : The Affordable Housing Nexus Study (reference Attachment E) provides an analysis of the relationship and nexus between new market rate housing and non -residential development projects and an increased demand for affordable housing. The nexus portion of the commercial linkage fee analysis identifies the relationship, or “nexus”, between the construction of new non -residential projects and the need for affordable housing funds. The Affordable Housing Nexus Study supports the proposed changes to the Inclusionary Housing Ordinance and the establishment of a Commercial Linkage Fee and demonstrates that projects will remain feasible to Item: 17
Category: PUBLIC HEARINGS AND

INTRODUCTION OF

ORDINANCES
Meeting Date: August 20, 2024
17 Packet Pg. 205
Nexus Study, Inclusionary Housing Ordinance, Housing Code Page 2 of 13 develop with the proposed policy options. The Affordable Housing Nexus Study implements programs H1.a (Inclusionary Housing Ordinance implementation) and H1.b (Commercial Linkage Fees) of the City’s 2023-2031 Housing Element.

2) Updates to Inclusionary Ordinance : The proposed changes to the Inclusionary Housing Ordinance will implement Program H -1a of the 2023 -2031 Housing Element, clarify existing requirements, and allow compliance with state law. Key changes include lowering the inclusionary housing unit threshold (from 10 to 5 units), changing how fractional housing obligations are rounded (e.g., 0.5 rounds up vs. all fractions round up), extending how long for -sale units must remain affordable (e.g., 45 -years to 55 -years), and making adjustments to the City’s housing in -lieu fee program (e.g., adding an option to provide more affordable units in exchange for fewer more deeply affordable units and removing an option to pay an in-lieu fee for low density projects).

3) Establishment of Commercial Linkage Fees : This will establish a new Commercial Linkage Fee Program pursuant to Housing Element Program H1.b (Commercial Linkage Fees). A new proposed ordinance will serve to establish provisions governing the collection and use of a commercial linkage fee (Housing Element Program H1.b (Commercial Linkage Fees) . Key provisions of the commercial linkage fee include establishing a fee of $9 per square foot for all commercial and industrial uses, with reductions available for pro jects below 5,000 square feet, projects over 100,000 square feet and providing a fee exemption for the non-residential component of vertical mixed-use projects (up to 15% of total building area.

4) Establishment of Title 19 (Housing): Staff is also proposing to establish a new Title 19 (Housing ) to the Campbell Municipal Code which will serve to establish provisions related to administration of the City’s Housing Program and provide limited rent control for below -market rate housing units ( following rent control provisions of the Tenant Protection Act of 2019 ) as described in Housing Element Program H2.a (Below Market Rate Housing Rent Control Ordinance) and the implementation of state -mandated tenant protections as described in Housing Element Policies H1.h (Periodic Ordinance Amendments and H5.1 (renter protections) and pursuant to Government Code Section 66300.6.

BACKGROUND

The City of Campbell is in the process of implementing its 2023 -2031 Housing Element which was adopted in 2023. The Housing Element identified updates to the City’s Inclusionary Housing Ordinance and the establishment of Commercial Linkage Fees as a “short-term” goal with review and adoption occurring in 2024. Key events leading up to the development of proposed amendments to the Inclusionary Ordinance are summarized below:

17 Packet Pg. 206
Nexus Study, Inclusionary Housing Ordinance, Housing Code Page 3 of 13 On April 18, 2023, the City Council adopted a Housing Element for the 2023 -2031 planning period that identified programs to modify the City’s Inclusionary Housing Ordinance (Program H-1a) and to establish a Commercial Linkage Fee (Program H -2b) as follows:

Program H -1a: Inclusionary Housing Ordinance Implementation : Amend the Inclusionary Housing Ordinance to offer developers a menu of options for achieving affordability, adjusting the percentage of units required to be affordable depending on the degree of affordability achieved (i.e., moderate -, low-, very low-, and extremely low income). These amendments could also include:
• Initiating a nexus study to reevaluate increasing the affordable housing in -lieu fee.
• Updating the inclusionary ordinance to require for -sale projects to provide the same allocation of units available to lower -income and very low -income units that is required for rental projects.”
• Modifying the In-Lieu Fee threshold to apply only to developments of 5 -9 units.

Housing developments of 10 or more units would not be allowed to substitute affordable units with in-lieu fees.

Program H-1b: Commercial Linkage Fee: Establish an affordable housing impact fee that will apply to nonresidential development to provide an additional local source of revenue to support production of affordable housing.

On September 5, 2023, the City Council authorized the execution of a contract with BAE Urban Economics for the preparation of an Affordable Housing Nexus Study serving to analyze the relationship and nexus between new market rate housing and non - residential development projects and a demand for affordable housing consistent with the requirements of Housing Element Programs H-1a and H-1b above.

On November 3, 2023, and March 6, 2024, the City held stakeholder meetings soliciting feedback on potential changes to the City’s housing in -lieu fee, the establishment of a commercial linkage fee, and related policy changes.

On April 16, 2024 , the City Council held a Study Session receiving a draft of the Affordable Housing Nexus Study. The staff report outlined various policy options concerning implementation of Program H -1a and H -1b of the Housing Element, summarized stakeholder feedback, and suggested a series of guiding principles to aid in the discussion (establish fees that are simple to understand, equitable, and avoid discouraging new development). The City Council provided policy direction supporting the recommended changes by staff and requested further analysis on the impacts of the inclusionary o rdinance on small projects (i.e., 5 -9 units) to avoid unintended consequences and suggestions on how success of the program changes could be measured or confirmed (i.e., return after two-years) once adopted.

17 Packet Pg. 207
Nexus Study, Inclusionary Housing Ordinance, Housing Code Page 4 of 13 Pursuant to Council direction, BAE Urban Economics has now completed the Affordable Housing Nexus Study including the additional analysis of small residential projects, and changes to the City’s Inclusionary Housing Ordinance have been prepared by staff.

On August 13, 2024, the Planning Commission reviewed the proposed changes to Chapter 21.24 (Inclusionary Housing Ordinance). Feedback from the Planning Commission and staff feedback in response has been captured below.

DISCUSSION

The following discussion is organized into four sections. The first section serves to summarize the Affordable Housing Nexus Study. The second section focuses on changes to the City’s Inclusionary Housing Ordinance. The third section focuses on the establishment of a Commercial Linkage Fee program and the fourth section discusses the new Title 19 (Housing) to the Campbell Municipal Code and the implement ation of other housing policies.

I. Affordable Housing Nexus Study

The Affordable Housing Nexus Study (reference Attachment E) provides an analysis of the relationship and nexus between new market rate housing and non -residential development projects and an increased demand for affordable housing. The nexus portion of the commercial linkage fee analysis identifies the relationship, or “nexus”, between the construction of new non -residential projects and the need for affordable housing funds. The Affordable Housing Nexus Study supports the proposed changes to the Inclusionary Housing Ordinance and demonstrates projects will remain feasible to develop with the proposed policy options.

State housing policy requires the City to assist in the development of adequate housing to meet the current and future housing needs of Campbell residents. Under the 6th Cycle Regional Housing Needs Allocation (RHNA), the City is required to plan for the development of 752 very low, 434 low, and 499 moderate -income units, which together account for 56% of the City's total RHNA obligation. In comparison, the City’s 1,292 above-moderate income units represent only 44% of the City’s RHNA for the 2023 -2031 planning period. Understanding the housing needs of the community, the Inclusionary Ordinance requirement for 15% of all new units to be made affordable is reasonable and appropriate to achieve the City's housing needs and obligations.

The Nexus Study establishes the relationship between development and demand for affordable Housing for both market rate housing development and commercial development.

As new market rate units are added to the Campbell market, the wage earners living in these units spend money for goods and services in the local economy which in turn creates demand for lower -wage retail and service sector jobs. The policy basis for establishing an inclusionary housing requirement and in -lieu fee is in part based on the 17 Packet Pg. 208
Nexus Study, Inclusionary Housing Ordinance, Housing Code Page 5 of 13 need for Campbell to generate resources to serve the housing needs of lower -wage worker households related directly to new market-rate development.

The Nexus study has been updated to evaluate the potential impact of a new $60 per square foot in -lieu fee on smaller scale (six or nine unit) townhome developments , responding to stakeholder concerns and Council direction . In each case, the imposition of the staff recommended fee of $60 fee does not present a constraint on feasibility on six or nine unit housing projects and they will achieve an 18% profit as a percent of total development costs and a positive land residual in excess of prevailing land prices in the market area.

The nexus portion of the commercial linkage fee analysis identifies the relationship, or “nexus”, between the construction of new non -residential projects and the need for affordable housing funds. The commercial linkage fee nexus analysis is based on the premise that new commercial land uses generate new employment for workers that will have a range of household incomes. Due to high housing costs in Campbell, new workers with extremely low, very low, or low household incomes will be unable to afford most market-rate housing in the City without incurring substantial cost burdens. The resulting impact from new non -residential development is an increase in workers in Campbell that face a lack of affordable housing options. The commercial linkage fee mitigates these impacts by generating revenue to support the construction of housing affordable to the new lower-income worker households.

This analysis in the Nexus Study provides the justification for the proposed changes to the Inclusionary Housing Ordinance and establishment of commercial linkage fees through a new Title 19 which are explained in greater detail in their corresponding sections. Guiding principles were also established for the updates to the Inclusionary Housing Ordinance and the Commercial Linkage (establish fees that are simple to understand, equitable, and avoid discouraging new development).

II. Proposed Changes to Inclusionary Housing Ordinance

The Draft Ordinance (reference Attachment B, Exhibit A) introduces changes to the Inclusionary Housing Ordinance serving to implement Program H -1a of the 2023 -2031 Housing Element. Key revisions include lowering the inclusionary housing unit threshold (from 10 to 5 units), changing how fractional housing obligations are rounded (e.g., .5 rounds up vs. all fractions round up), extending how long for -sale units must remain affordable (e.g., 45-years to 55-years), and making adjustments to the City’s housing in- lieu fee program (e.g., adding an option to provide more affordable units in exchange for fewer more deeply affordable units and removing an option to pay an in -lieu fee for low density projects).

The following table serves to compare these changes, which have been prepared consistent with prior Council direction (see “Background”), with the existing provisions of 17 Packet Pg. 209
Nexus Study, Inclusionary Housing Ordinance, Housing Code Page 6 of 13 the Inclusionary Housing Ordinance. The table also explains the purpose and impact of the change.

Summary of Changes Inclusionary Housing Ordinance
Policy Existing Proposed Explanation
Project Size
Threshold 10 units 5 units
Changes to the minimum
project size threshold and
rounding provisions serve to
produce more affordable
housing and/or funding to the
City’s housing fund (in
circumstances where
developers opt to pay the
City’s housing in-lieu fee).

Rounding ≥.5 rounds up
<.5 rounds down
All fractions
round up
Affordability
For-Sale Projects
40% Low -Income &
60% Moderate

For Rent
40% Very -Low Income
& 60% Low-Income
No Change

See discussion following
table*.

Duration For-Sale: 45-years
For-Rent: 55-years
55-years
(for-sale and for-
rent)
To standardize the duration
in which units must remain
affordable and extend the
duration in which for-sale
units remain affordable.

Housing
In-Lieu Fee
May pay in -lieu fee for
low-density residential
projects (less than 6 -
units per gross acre).

May pay in-lieu for
any fractional
obligation of small
projects (5-6 unit)
and for fractional
obligations less
than .5 for all other
projects.

These changes are designed
to provide a more gradual
“ramp” to compliance and
help capture the fractional
impact of housing
development projects (which
is currently rounded down) in
support of City goals and
objectives.

Effective
Date Effective today.

Varies; some
provisions delayed
up to one year.

The proposed changes to the
City’s inclusionary
requirement threshold,
rounding provisions, etc., are
proposed to apply to projects
submitted one year following
adoption of the Ordinance.

This delayed effective date
helps to avoid impacts to
projects in the “pipeline” and
17 Packet Pg. 210
Nexus Study, Inclusionary Housing Ordinance, Housing Code Page 7 of 13 provide time for developers
to respond.

In addition to the modifications to the inclusionary housing ordinance described above, Program H -1a in the Housing Element also identified that the City could lower the affordability requirements of for -sale projects to match those imposed on for -rent projects (i.e., 40% very -low income & 60% low income). Staff has reviewed this potential change further and recommended the City not pursue this modification as it may: 1) frustrate the City’s efforts to produce for -sale moderate-income units (which are the most challenging to develop); 2) be found counterproductive to broader Housing Element goals, including Goal H-3, which aims to provide housing affordable to a variety of income levels (by reducing the production of for -sale moderate income units); and 3) diminish the City’s ability to satisfy its Regional Housing Needs Allocation (RHNA).

➢ Planning Commission Feedback: On August 13, 2024, the Planning Commission considered the proposed changes to the Inclusionary Housing Ordinance. As part of the meeting, the Planning Commission accepted testimony and written comments (Attachment F) from three individuals representing realtors and real estate development interests. This feedback included suggestions that the ordinance should have more options for a project to pay an in -lieu fee rather than provide units, have the ability to provide units off -site, and statements that lowering the threshold from 10 units to 5 units would make it infeasible to develop smaller projects which can provide “missing middle” housing units.

After accepting public testimony and deliberating, the Planning Commission voted to recommend that the Council adopt the Inclusionary Housing Ordinance without modifications to lower the threshold from 10 to 5 units and to remove the change in rounding (requiring inclusionary calculations of 0.1 to 0.5 to pay an in- lieu fee or provide an additional unit).

In discussing this recommendation, several of the Planning Commissioners conveyed that they had a lack of understanding of the Affordable Housing Nexus study and how the changes to the rounding provisions would impact housing development, with concerns it would financially harm smaller projects (5 -9 unit projects).

Staff still recommends the Council adopt the staff recommended modifications to the Inclusionary Housing Ordinance, as it is in furtherance of the policy direction provided by Council at the April 16, 2024 meeting, and the Nexus study contains substantial financial analysis and documentation showing that application of the Inclusionary Housing Ordinance to smaller projects (5 -9 units) will not affect their financial feasibility (developers will maintain an 18% profit).

If the Council would like to follow the Planning Commission recommended modifications, staff recommends that the hearing be continued to allow staff and legal counsel to provide a revised ordinance that meets Council direction. 17 Packet Pg. 211
Nexus Study, Inclusionary Housing Ordinance, Housing Code Page 8 of 13

III. Commercial Linkage Fee Program

The Draft Ordinance (reference Attachment C, Exhibit A -1) establishes a Commercial Linkage Fee program serving to implement Program H -1b of the 2023 -2031 Housing Element, along with other housing program provisions which are further described in Section IV. below . The purpose of this title is to set forth guidelines, regulations, and policies related to the provision of housing, including affordable housing, and housing services in the City of Campbell. The primary element of this ordinance includes the establishment of a commercial linkage fee.

The Commercial Linkage Fee section of the ordinance has been prepared consistent with Council’s direction at its April 16, 2024, meeting. The Commercial linkage fee program has been structured so as not to discourage new commercial development in conflict with the City’s Economic Development Plan, while still maintaining a new revenue stream into the Housing Program.

The following table serves to summarize and explain the provisions of the Commercial Linkage Fee program:

Summary of Proposed Commercial Linkage Fee Program
Policy Proposed Explanation
Fee
Requirement
▪ $9 flat fee per square-foot for all
commercial/industrial uses
(garage areas exempt)
▪ Requires payment at time of
building permit issuance.

Consistent with Council direction
to not discourage new
commercial development.

Fee
Reduction
▪ Small Projects: 50% of fee rate
when resulting in 5,000 sq. ft. or
less of net new area
▪ Large Projects: 50% of fee rate
for each additional square-foot
over 100,000 sq. ft. of net new
area

This provision seeks to alleviate
smaller or larger projects from
bearing an undue burden in how
the fee is calculated.

Exemption
Provides a fee exemption for the non-
residential component of vertical
mixed-use projects (up to 15% of total
building area).

This provision is implemented to
further the City’s economic
development goals and
encourage mixed-use
development.

Credit for
Building
Provides credit for existing and/or
recently demolished buildings,
This provision factors in existing
square footage and imposes the
17 Packet Pg. 212
Nexus Study, Inclusionary Housing Ordinance, Housing Code Page 9 of 13 Area provided that less than three years
elapses between the date of
demolition permit final and the date of
linkage fee payment.

fee on net new square footage.

Expenditure
of
Commercial
Linkage Fee
Fund
Eligible expenditures include the cost
of land and right-of-way acquisition,
planning, legal advice, engineering,
design, construction, construction
management, materials and
equipment, or issuing loans to
nonprofit Affordable Housing
developers to acquire land and/or to
rehabilitate existing buildings or build
new developments to increase the
supply of Affordable Housing units.

Funds shall be expended solely
on the production or
refurbishment of Affordable
Housing to mitigate the increased
need for Affordable Housing that
is created by new Non-
Residential development.

Effective
Date Delayed one year.

The proposed commercial linkage
fees are proposed to apply to
projects submitted one year
following adoption of the
Ordinance.

This delayed effective date helps
to avoid impacts to projects in the
“pipeline” and provide time for the
market to improve and
developers to respond.

➢ Planning Commission Feedback: The Planning Commission did not formally review the Commercial Linkage Fee program as part of its meeting on August 13, 2024. The Commercial Linkage Fee program is contained in the newly proposed Title 19 (Housing) which is not subject to Planning Commission review.

IV. Establishment of Title 19 (Housing) and Other Modifications to Implement the Housing Element

The following table serves to summarize all the other proposed provisions of Title 19 (Housing) to implement the Housing Element and explains the purpose and impact of each provision.

Summary of Proposed Provisions
Policy Proposed Explanation
17 Packet Pg. 213
Nexus Study, Inclusionary Housing Ordinance, Housing Code Page 10 of 13 Appeals to
Housing
Code
Process
Interested parties may file an appeal
to City Council within ten days after
the date of the decision by the
Community Development Director or
Planning Commission
Establishes an appeals process
regarding a discretionary decision
or interpretation made to the
housing code by the Community
Development Director or Planning
Commission. Sets forth timing,
evidence and noticing
requirements.

Below Market
Rate Unit
Rent Control
Owner may not increase rent for a
BMR rental unit more than 5% plus the
percentage change in the cost of
living, or 10 % whichever is lower
within a 12-month period.

This provision is implemented in
accordance with Housing
Element program H.2a (Below
Market Rate Housing Rent
Control Ordinance). Addresses
rent increases, frequency of rent
increases and clarifies that this is
only applicable to new BMR
agreements entered into after the
effective date of the Ordinance.

Tenant
Protections
Tenants must be notified at least six
months in advance of a planned
demolition. Tenants shall have the
right of first refusal for a comparable
unit and tenant relocation benefits
must be provided to lower income
households in a protected unit.

Serves to implement state
mandated residential tenant
protections as part of SB 330
(Housing Crisis Act of 2019),
which includes tenant notification
requirements, and tenant
relocation benefits for occupants
of protected units in the City of
Campbell.

➢ Planning Commission Feedback: The Planning Commission did not formally review Title 19 as part of its meeting on August 13, 2024. Title 19 establishes a new proposed Housing Code which is not subject to Planning Commission review.

ENVIRONMENTAL DETERMINATION
The California Environmental Quality Act (CEQA) requires agencies to identify the potential environmental effects of “projects”.

While adoption of the proposed Resolutions and Ordinances are considered a "project" under Section 15378(a)(1) of the California Environmental Quality Act (CEQA), their adoption may be found exempt from environmental review. Each Resolution and Ordinance sets forth the grounds for how the specific action may be found categorically exempt under CEQA.

17 Packet Pg. 214
Nexus Study, Inclusionary Housing Ordinance, Housing Code Page 11 of 13

FISCAL IMPACT

If a commercial linkage fee is established and the inclusionary housing ordinance is updated, they could create a stable funding source for the City’s Housing Program and may be used to support the production of new affordable housing.

Potential fee revenue generation estimates were provided to Council on the April 16, 2024, study session on the Affordable Housing Nexus Study. The following sections summarize the potential revenue that may result from the proposed commercial linkage fee program and proposed changes to the City’s Inclusionary Ordinance.

A. Commercial Linkage Fee Program

While it's challenging to precisely forecast the exact scale, type, and volume of new floor space added annually by projects, the estimated potential fee generation of the commercial linkage fee program over a 15 -year period was estimated to generate up to $4 million in fees over a comparable time frame, averaging approximately $300,000 in fees per year.

B. Inclusionary Ordinance Program:

While difficult to predict housing development trends, it may be estimated that, on average, the city may see up to six (6) qualifying projects per year based on past development trends and new housing opportunities provided over the next 15 -years.

Assuming that half of the qualifying projects are ineligible to “fee out”, since their fractional inclusionary obligation are 0.5 and over, a rough estimate of potential fees generated may be calculated as follows:

Housing Projects Projects Eligible
to Pay In-Lieu Fee
Projects
Opting to Pay Fee
Estimated
Revenue
90 Projects

(6 projects/yr. x 15
yrs.)
45 Projects

(Half of all projects will
qualify to pay an in-lieu
fee)

22.5 Projects

(Half of qualifying
projects will opt to
pay the fee, rather
than provide a unit)
$3,555,000

($237,000/yr.)
Note: Table assumes each project averages 95 units with an average unit size of 1,580 sq. ft. for estimation.

Using this table as a guide, the inclusionary in lieu fees could generate up to $ 3.55 million in fees over a comparable time frame, averaging around $237,000 in fees per year.

When considering this estimate, it is important to consider that the table excludes 17 Packet Pg. 215
Nexus Study, Inclusionary Housing Ordinance, Housing Code Page 12 of 13 projects with 5 or 6 units to simplify the estimate and would span the current, and next, housing element planning periods.

C. Total Revenue:

Accounting for the annual fee revenue anticipated by the Commercial Linkage Fee Program ($300,000 a year) and the proposed changes to the Inclusionary Ordinance Program ($237,000 a year) the proposed changes may result in a total of $537,0001 in fee revenue per year which may be used to support new housing development If the Planning Commission’s recommended ordinance is adopted, the projected revenue from the Inclusionary Ordinance Program ($ 237,000) will not be realized because the City will not have the ability to collect in -lieu fee payments for fractional units or projects less than 10 units in size.

ALTERNATIVES

1. Do not approve amendments to Chapter 21.24 (Inclusionary Housing Ordinance) and/or the establishment of Title 19 (Housing). This would result in no changes to the in-lieu housing fee and would not establish a commercial linkage fee.

2. Propose amendments to Chapter 21.24 (Inclusionary Housing Ordinance) and/or the Title 19 (Housing) policies or provisions as appropriate.

3. Accept the Planning Commission recommended action and continue the hearing and direct staff to return with a revised Ordinance.

Prepared by:

Eloiza Murillo-Garcia, Housing Program
Manager
Reviewed by:
1 Prior calculations assumed gross vs. habitable/leasable space. As a result, it is anticipated that prior projections would be approximately 20% less than previously suggested, or approximately $266,000 a year from the Commercial Linkage Fee and $124,000 a year from the Inclusionary Ordinance program, for a total of $366,000 per year.
17 Packet Pg. 216
Rob Eastwood, Community
Development Director
Nexus Study, Inclusionary Housing Ordinance, Housing Code Page 13 of 13 Approved by:

Brian Loventhal, City Manager
Attachment:
a. Draft Resolution adopting Affordable Housing Nexus Study b. Draft Ordinance amending Chapter 21.24 (Inclusionary Housing Ordinance) c. Draft Ordinance establishing Title 19 (Housing)
d. Draft Resolution amending City Fee Schedule
e. Affordable Nexus Study
f. Public Comment
17 Packet Pg. 217

RESOLUTION NO.

BEING A RESOLUTION OF THE CITY OF CAMPBELL ADOPTING AN
AFFORDABLE HOUSING NEXUS STUDY. FILE NO. PLN-2023-85.

After notification and public hearing, as specified by law and after presentation by the Community Development Director, proponents and opponents, the hearing was closed.

The City Council finds as follows in consideration of the adoption of an Affordable Housing Nexus Study (File No. PLN-2023-85):

WHEREAS, on April 18, 2023, the City Council adopted a Housing Element for the 2023- 2031 planning period that identified programs to modify the City’s Inclusionary Housing Ordinance (Program H -1a) and establish a Commercial Linkage Fee (Program H -2b) as follows:

Program H -1a: Inclusionary Housing Ordinance Implementation: Amend the Inclusionary Housing Ordinance to offer developers a menu of options for achieving affordability, adjusting the percentage of units required to be affordable depending on the degree of affordability achieved (i.e., moderate -, low -, very low -, a nd extremely low income). These amendments could also include:
• Initiating a nexus study to reevaluate increasing the affordable housing in-lieu fee. • Updating the inclusionary ordinance to require for -sale projects to provide the same allocation of units available to lower-income and very low-income units that is required for rental projects.”
• Modifying the In-Lieu Fee threshold to apply only to developments of 5- 9 units. Housing developments of 10 or more units would not be allowed to substitute affordable units with in-lieu fees.

Program H-1b: Commercial Linkage Fee: Establish an affordable housing impact fee that will apply to nonresidential development to provide an additional local source of revenue to support production of affordable housing.

WHEREAS, Program H-1a (Inclusionary Housing Ordinance Implementation) and Program H-1b (Commercial Linkage Fee) call for consideration of changes to the City’s housing in-lieu fee and support the establishment of a housing impact fee to nonresidential development (hereinafter “commercial linkage fee”).

WHEREAS, Government Code Section 66016.5 requires the City to adopt an impact fee nexus study before the adoption of an associated development fee.

WHEREAS, on September 5, 2023, the City Council authorized the execution of a contract with BAE Urban Economics for the preparation of an Affordable Housing Nexus Study serving to analyze the relationship and nexus between new market rate housing and non- residential development projects and a demand for affordable housing consistent with the requirements of Housing Element Programs H-1a and H-1b.

WHEREAS, o n July 15, 2024, BAE Urban Economics completed the Affordable Housing Nexus Study.

WHEREAS, the Affordable Housing Nexus Study describes the projects on which fees are to be imposed, the reasonable relationship between the impact fees and the various types of

17.a
Packet Pg. 218
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) City Council Resolution No.

PLN-2023-85 – Adopting an Affordable Housing Nexus Study Page 2 of 2

new development, and sets forth a methodology for determining the relationship between new development and the needed public facilities and the estimated cost of those improvements.

WHEREAS, the Affordable Housing Nexus Study calculates the maximum justifiable impact fees that can be charged on new development, and therefore, the City Council may adopt Development Impact Fees at, or below, the maximum justifiable amount identified within the Affordable Housing Nexus Study.

WHEREAS, the Affordable Housing Nexus Study has been prepared in compliance with the requirements of the California Mitigation Fee Act (California Government Code sections 66000 et. seq.), which sets forth procedural requirements for establishing and collecting development impact fees.

WHEREAS, the City duly provided a 30-day notice of the public hearing and sent a mailed notice to any interested party who had filed a written request for a mailed notice of a public hearing on new or increased fees as required by state law.

WHEREAS, the City has complied with the notice and hearing requirements of state law.

WHEREAS, p ursuant to Section 15378(b)(4) of the California Environmental Quality Act (CEQA) Guidelines, the adoption of the Affordable Housing Nexus Study supporting updates to the City’s fee s is not a project subject to CEQA in that it is a government fiscal activity which does not involve any commitment to any specific project which may result in a significant impact on the environment.

WHEREAS, in consideration of the adoption of the Affordable Housing Nexus Study, the City Council provided due consideration of all evidence presented and provided in the entire administrative record.

WHEREAS, this Resolution shall become effective upon adoption.

THEREFORE, BE IT RESOLVED that the City Council adopts a Resolution adopting the Affordable Housing Nexus Study as set forth in Exhibit A.

PASSED AND ADOPTED this _______ day of ________________, 2024 , by the following roll call vote:

AYES: COUNCILMEMBERS:

NOES: COUNCILMEMBERS:

ABSENT: COUNCILMEMBERS:

ABSTAIN: COUNCILMEMBERS:

APPROVED:

Susan M. Landry, Mayor

ATTEST:

Andrea Sanders, City Clerk

17.a
Packet Pg. 219
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code)

bae urban economics
FINAL DRAFT Affordable Housing Nexus Study
Prepared for the City of Campbell
July 15, 2024

17.a
Packet Pg. 220
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code)

Table of Contents

1. INTRODUCTION ................................ ................................ ................................ ...................... 1 Commercial Linkage Fee Analysis ............................................................................................... 2 Residential Feasibility and In-Lieu Fee Analysis ......................................................................... 2 Current Inclusionary Housing Requirements and In-Lieu Fee ................................................... 3 Affordability of Market-Rate Housing .......................................................................................... 4 Input from Developers ................................................................................................................. 6 AB 602 Requirements .............................................................................................................. 10 AB 1505 Requirements ............................................................................................................ 11

2. COMMERICAL LINKAGE FEE ANALYSIS ................................ ................................ ............... 13 Commercial Linkage Fee Nexus Analysis ................................................................................ 13 Commercial Linkage Fee Financial Feasibility Analysis .......................................................... 24 Non-Residential Fee Benchmark Analysis ............................................................................... 28 Summary of Findings from Commercial Linkage Fee Analysis .............................................. 35

3. RESIDENTIAL FINANCIAL FEASIBILITY ANALYSIS ................................ ................................ 36 Residential Development Trends in Campbell ........................................................................ 36 Campbell Residential Development Standards ...................................................................... 36 Prototypes .................................................................................................................................. 37 Methodology for Financial Feasibility Analysis ........................................................................ 38 Rental Inclusionary Financial Feasibility Findings................................................................... 39 For-Sale Residential Financial Feasibility Findings ................................................................. 40 Summary of Findings ................................................................................................................ 42

4. INCLUSIONARY HOUSING IN-LIEU FEE ANALYSIS ................................ ............................... 44 Inclusionary Unit Construction Cost Approach ........................................................................ 45 Point of Indifference Approach ................................................................................................. 47 Residential Fee Benchmark Analysis ....................................................................................... 48 Summary of Findings from Inclusionary In-Lieu Fee Analysis ................................................ 54

5. KEY FINDINGS & POLICY OPTIONS................................ ................................ ...................... 55 Affordable Housing Need .......................................................................................................... 55

17.a
Packet Pg. 221
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code)

Commercial Linkage Fee Policy Options .................................................................................. 55 Inclusionary Housing In-Lieu Fee Findings and Policy Options .............................................. 58 APPENDIX A: AB 602 ANALYSIS................................ ................................ ............................... 62 Commercial Linkage Fee AB 602 Analysis .............................................................................. 62 APPENDIX B: NON-RESIDENTIAL PRO FORMAS ................................ ................................ ...... 67 APPENDIX C: RESIDENTIAL PRO FORMAS ................................ ................................ ............... 73 APPENDIX D: OVERVIEW OF IMPLAN ................................ ................................ ....................... 89

17.a
Packet Pg. 222
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code)

List of Tables

Table 1: Inclusionary Housing Affordability Terms in Nearby Jurisdictions ................................... 4 Table 2: Household Income Limits by Household Size, Santa Clara County, 2023 ..................... 5 Table 3: Affordability of Market-Rate Multifamily Rental Units, Campbell, 2023 ......................... 6 Table 4: Employment Densities by Land Use ................................................................................ 15 Table 5: Distribution of Worker Households by Income ............................................................... 16 Table 6: Worker Households by Income Level by Land Use ....................................................... 18 Table 7: Affordable Housing Financing Gaps, Campbell, 2023 ................................................... 21 Table 8: Maximum Legal Commercial Linkage Fees, Campbell .................................................. 23 Table 9: Summary of Financial Pro Forma Analysis, Current Conditions (No Commercial Linkage Fee) .................................................................................................................................... 27 Table 10: Possible Commercial Linkage Fees as a Percent of Total Development Cost ........... 28 Table 11: Commercial Linkage Fees in Other Jurisdictions (per net new square foot) .............. 32 Table 12: Summary of Residential Prototype Development Programs ....................................... 37 Table 13: Summary of Residential Development Feasibility ....................................................... 43 Table 14: Construction Cost In-Lieu Fee Amount by Prototype ................................................... 46 Table 15: Point of Indifference In-Lieu Fee Amount by Prototype ............................................... 48 Table 16: Inclusionary Housing In-Lieu Fees in Nearby Jurisdictions ......................................... 51 Table 17: Summary of Findings from In-Lieu Fee Analysis .......................................................... 54

17.a
Packet Pg. 223
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code)

List of Figures

Figure 1: Non-Residential Impact Fees in Campbell and Comparison Jurisdictions .................. 34 Figure 2: Residential Impact Fees in Campbell and Comparison Jurisdictions .......................... 53

17.a
Packet Pg. 224
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Introduction 1

1. INTRODUCTION
This study provides analysis to assist the City of Campbell in considering the adoption of commercial linkage fees and changes to the City’s inclusionary housing in-lieu fees. The City of Campbell is situated in one of the highest-cost regions in the country, where market-rate housing is often unaffordable for lower-income and moderate-income households. The City has sought to address these challenges through a variety of programs and actions, including a long-standing inclusionary housing ordinance that requires that some units in most new market-rate residential developments be made affordable to lower-income or moderate- income households. The City’s inclusionary housing ordinance allows developers of some projects to choose to pay an in-lieu fee instead of providing inclusionary units, with revenues from the in-lieu fee directed to support affordable housing programs. As part of the City’s efforts to address affordable housing needs, the City is now considering the adoption of commercial linkage fees that would apply to new non-residential development projects in the City, with revenues from commercial linkage fees providing funding to support affordable housing programs.

The City of Campbell’s 2023-2031 Housing Element Update includes programs related to the adoption of commercial linkage fees, updates to the City’s inclusionary housing ordinance, and updates to the City’s inclusionary housing in-lieu fees. These programs include:

Program H-1a: Inclusionary Housing Ordinance Implementation: Amend the Inclusionary Housing Ordinance to offer developers a menu of options for achieving affordability, adjusting the percentage of units required to be affordable depending on the degree of affordability achieved (i.e., moderate-, low-, very low-, and extremely low- income).

These amendments could also include:
• Initiating a nexus study to reevaluate increasing the affordable housing in-lieu fee.
• Updating the inclusionary ordinance to require for-sale projects to provide the same allocation of units available to lower-income and very low-income units that is required for rental projects.
• Modifying the In-Lieu Fee threshold to apply only to developments of 5-9 units.

Housing developments of 10 or more units would not be allowed to substitute affordable units with in-lieu fees.

Program H-1b: Commercial Linkage Fee: Establish an affordable housing impact fee that will apply to nonresidential development to provide an additional local source of revenue to support production of affordable housing.

17.a
Packet Pg. 225
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Introduction 2

The analysis presented in this report supports the City’s implementation of these Housing Element programs.

Commercial Linkage Fee Analysis
One of the purposes of this report is to provide the analysis needed to inform the City’s consideration of the adoption of commercial linkage fees. Commercial linkage fees are considered to be development impact fees that are subject to the requirements of the California Mitigation Fee Act. Local governments have the authority to implement development impact fees for the purpose of mitigating all or some of the costs associated with addressing the impacts of new development. Under the California Mitigation Fee Act (Government Code Section 66000 et seq.), before adopting an impact fee, local governments must adopt a nexus study that demonstrates a reasonable relationship between the impacts of new development, the facilities needed to address those impacts, and the fees that the jurisdiction intends to charge.

One purpose of this study is to address this requirement by quantifying the estimated relationship between new non-residential development in Campbell, the need for workforce housing, and the public cost to construct housing that is affordable to lower-income workers.

The basis for the commercial nexus analysis is that new non-residential development generates new employment and brings new worker households to the area. A portion of these workers will have wages and household incomes that are not high enough to enable them to afford market-rate housing in Campbell, and as a result new commercial development is associated with a need for additional affordable housing. The nexus analysis identifies the fees that the City of Campbell would need to charge to generate the funds necessary to support the construction of affordable units for these workers.

Nexus studies for this type of fee often find that the fee rates that are supported by the nexus analysis are relatively high, and that charging the full nexus-based fee amount would likely render most or all new non-residential development infeasible. This is because the nexus analysis estimates the revenue that would need to be collected to address the impacts that new development has on worker housing needs, which does not bear any direct relationship to the financial feasibility of new development projects. To address this, this study also includes a financial feasibility analysis to evaluate the impact that new fees could have on the feasibility of new non-residential development. While the nexus analysis identifies the maximum amount that Campbell could charge based on the relationship between new non- residential development and the need for affordable housing funds, the City can adopt lower fee rates based on financial feasibility considerations or other factors.

Residential Feasibility and In-Lieu Fee Analysis
Unlike commercial linkage fee programs, which focus on the establishment of fees, inclusionary housing programs focus on the production of affordable housing units. As an alternative to providing housing units, Inclusionary Housing Programs offer an “in-lieu fee”

17.a
Packet Pg. 226
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Introduction 3

which is not subject to the same “nexus” standard as commercial linkage fees as developers retain the option of providing affordable housing units instead of paying the in-lieu fee. By State law, a local requirement to provide affordable housing units is also not subject to a nexus standard, provided the that the required inclusionary housing percentage does not exceed 15 percent of the conforming units provided

1. This study offers two alternative methods for determining a reasonable residential in-lieu fee in Campbell, as well as recommendations for implementing an updated in-lieu fee. In addition, this study includes a residential financial feasibility analysis to evaluate the feasibility of various types of residential development in Campbell. The residential financial feasibility analysis can help to inform the consideration of potential changes to the inclusionary ordinance. In addition, the financial feasibility analysis informs recommendations related to updating the City’s inclusionary housing in-lieu fees.

Current Inclusionary Housing Requirements and In-Lieu Fee Campbell’s inclusionary housing ordinance requires that new residential developments with ten or more units provide 15 percent of the units as affordable inclusionary units. For rental developments, 40 percent of the inclusionary units (i.e., six percent of the units in the project), must be affordable to very low-income households, with the remainder affordable to lower- income households. For for-sale developments, 40 percent of the inclusionary units (i.e., six percent of the units in the project), must be affordable to lower-income households, with the remainder affordable to moderate-income households. For example, a 100-unit rental development would be required to provide a total of 15 affordable inclusionary units, six of which are affordable to very low-income households and nine of which are affordable to lower- income households. A 100-unit for-sale development would be required to provide a total of 15 affordable inclusionary units, six of which are affordable to lower-income households and nine of which are affordable to moderate-income households.

Projects with a density of six dwelling units per acre or less have the option to pay an in-lieu fee rather than providing the inclusionary units. The current in-lieu fee is $21.50 per square foot for rental developments and $34.50 per square foot for for-sale developments. For example, a ten unit, for sale single family development with an average home size of 2,000 sq. ft., built at a density of six dwelling units per acre or less, would have the option to pay an in- lieu fee totaling $276,000 (10 units x .15% = 2 units; 2 units x 2,000 sq. ft. per unit x 34.50 per square foot).

Campbell’s inclusionary ordinance requires a 55-year affordability term for rental developments and a 45-year affordability term for for-sale developments. As shown in Table 1,

1 https://www.hcd.ca.gov/community-development/housing-element/housing-element- memos/docs/ab_1505_final.pdf

17.a
Packet Pg. 227
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Introduction 4

these affordability terms are comparable to the terms required by some nearby jurisdictions, but shorter than the required affordability terms in others. For example, Sunnyvale requires a 55-year affordability term for rental inclusionary units and a 30-year affordability term for for- sale inclusionary units, while Cupertino and San Jose require a 99-year affordability term for both rental and for-sale inclusionary units. Los Gatos and Mountain View require that inclusionary units remain affordable in perpetuity.

Table 1: Inclusionary Housing Affordability Terms in Nearby Jurisdictions

(a) Affordability term for for-sale units renews at change of each title for the duration of the affordability term. (b) Los Gatos has an ADU Incentive Program that provides financing for ADU construction in exchange for making the ADU affordable. In the case of affordable ADUs financed through the ADU incentive program, the affordability term is 30 years. (c) Affordable housing developments request a term of affordability of less than 99 years and no less than 55 years. (d) For-sale units must be re-sold to a qualifying buyer if sold within 5 years; City loan is forgiven in this instance. If resold within years 6-20, the seller may sell to any buyer but is required to pay off City loan and at sale and City receives a share of the increased equity.

Source: BAE, 2024.

Affordability of Market-Rate Housing
Table 3 below shows the average market-rate rent in Campbell as of the third quarter of 2023 as well as the maximum affordable monthly rent for households of various sizes and income levels. The U.S. Department of Housing and Urban Development (HUD) and the California Department of Housing and Community Development (HCD) characterize households as “extremely low-income,” “very low-income,” “low-income,” “moderate-income,” or “above- moderate income” based on percentages of the Area Median Income (AMI). These income categories are defined below.

• Extremely Low-Income: Up to 30 percent of AMI
• Very Low- Income: 31 percent to 50 percent of AMI
• Low-Income: 51 percent to 80 percent of AMI
• Moderate-Income: 81 percent to 120 percent of AMI
• Above-Moderate Income: More than 120 percent of AMI

The household incomes that correspond to each income level varies by household size, as shown in Table 2.

Rental Units For Sale Units
Campbell (a) 55 45
Cupertino 99 99
Los Gatos (b) In Perpetuity In Perpetuity
Mountain View In Perpetuity I n Perpetuity
San Jose (c) 99 99
Santa Clara (d) 55 20
Sunnyvale 55 30
Term of Affordability (Years)

17.a
Packet Pg. 228
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Introduction 5

Table 2: Household Income Limits by Household Size, Santa Clara County, 2023

Sources: California Department of Housing and Community Development, 2023; BAE, 2024.

In accordance with guidelines established by HUD, housing costs are generally considered to be affordable if a household’s housing costs are equal to no more than 30 percent of their household income. For lower-income households, having housing costs above this threshold often signifies that a household is at risk of losing their housing and may struggle to afford housing costs while also paying for food, transportation, health care, and other basic needs.

The analysis shown in Table 3 indicates that market-rate rents in Campbell exceed the affordability threshold for extremely low- and very low-income households, as well as for most low-income households. It should be noted that the incomes shown in the table are at the top of the income range for each group. Therefore, while Table 3 indicates that some one- and two-person households with incomes equal to 80 percent of AMI can afford market-rate rents, most lower-income households have incomes that fall somewhere below 80 percent of AMI.

As a result, market-rate rents exceed the affordability threshold for all but a small portion of lower-income households.

This analysis indicates that many new workers in Campbell with moderate or above moderate household incomes will generally be able to afford market-rate rental units in the City, while workers with lower household incomes will generally not be able to afford market-rate housing in Campbell. While some market-rate units in Campbell have rents that fall below the averages shown in Table 3, data from Costar indicate that the multifamily rental vacancy rate in Campbell is approximately three percent. This suggests that new housing will need to be built to accommodate an increase in worker housing demand regardless of the level of affordability needed. The market-rate rents shown in Table 3 are based on all market-rate units in Campbell, regardless of property age, and therefore are lower than the rents that would be charged at a newer development. As a result, new market-rate units are unlikely to provide housing that is affordable for worker households with extremely low, very low, and low incomes, and these households will need rent-restricted affordable housing in order to be able to afford to live locally.

Based on the calculations shown in Table 3, the nexus analysis provided in this study evaluates the extent to which new development generates a need for housing for extremely low-income, very low-income, and low-income households. As displayed below, the amounts Number of Persons in Household
Income Level 1 2 3 4 5 6 7 8
Acutely Low $19,050 $21,750 $24,500 $27,200 $29,400 $31,550 $33,750 $35,900 Extremely Low $37,450 $42,800 $48,150 $53, 500 $57,800 $62,100 $66,350 $70,650 Very Low Income $62,450 $71,400 $80,300 $89,200 $96,350 $103,500 $110,650 $117,750 Low Income $96,000 $109,700 $123,400 $137,100 $148,100 $159,050 $170,050 $181,000 Median Income $126,900 $145,050 $163,150 $181,300 $195,800 $210,300 $224,800 $239,300 Moderate Income $152,300 $174,050 $195,800 $217,550 $234,950 $252,350 $269,750 $287,150

17.a
Packet Pg. 229
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Introduction 6

below market rates are reflected in negative values shown in red parentheses or positive values shown in green. The nexus analysis does not focus on the housing need for moderate or above-moderate income households because households at these income levels are more likely to be able to afford market-rate housing.

Table 3: Affordability of Market-Rate Multifamily Rental Units, Campbell, 2023

Notes:
(a) The average asking multifamily rent by number of bedrooms in the City of Campbell at the end of the third quarter of 2023, as reported by CoStar.
(b) Housing Authority of Santa Clara County 2023 allowances for tenant-furnished utilities and other services for a multifamily unit that uses electricity for cooking, heating, and water heating, as well as electricity for lights and appliances.

Figure assumes the tenant is charged for water and sewer services. The allowance is based on the number of bedrooms in the unit and a household is assumed to have one bedroom fewer than the number of people in the household. (c) California Department of Housing and Community Development 2023 income limits for Santa Clara County. (d) Assumes 30 percent of income spent on rent and utilities.

Sources: CoStar, 2023; California Department of Housing and Community Development, 2023; HUD OMB 2577-0169, 2022; Housing Authority of Santa Clara County, 2023; BAE, 2023.

Input from Developers
The process for preparing this nexus study report included obtaining input from residential and non-residential developers through a series of one-on-one interviews, two developer focus group sessions, and an online developer survey. The developer interviews focused on collecting input on detailed assumptions for the financial feasibility analysis and also included Household (Unit) Size
1 Person 2 Person 3 Person 4 Person
(Studio) (1 Bedroom) (2 Bedrooms) (3 Bedrooms) Affordable? Average Market-Rate Rent (a) $2,063 $2,542 $3,025 $3,818 Utility Costs (b) $168 $179 $217 $253
Maximum Affordable Monthly Rent
Extremely Low Income (up to 30% AMI)
Household Income (c) $37,450 $42,800 $48,150 $53,500
Max. Affordable Monthly Rent (d) $768 $891 $987 $1,085
Amount Above (Below) Market Rate Rent ($1,295) ($1,651) ($2,038) ($2,734) No Very Low Income (31-50% AMI)
Household Income (c) $62,450 $71,400 $80,300 $89,200
Max. Affordable Monthly Rent (d) $1,393 $1,606 $1,791 $1,977 Amount Above (Below) Market Rate Rent ($670) ($936) ($1,235) ($1,841) No Low Income (51-80% AMI)
Household Income (c) $96,000 $109,700 $123,400 $137,100 Max. Affordable Monthly Rent (d) $2,232 $2,564 $2,868 $3,175 Amount Above (Below) Market Rate Rent $169 $21 ($157) ($644) No Median Income (81-100% AMI)
Household Income (c) $126,900 $145,050 $163,150 $181,300 Max. Affordable Monthly Rent (d) $3,005 $3,447 $3,862 $4,280 Amount Above (Below) Market Rate Rent $942 $905 $837 $462 Yes Moderate Income (101-120% AMI)
Household Income (c) $152,300 $174,050 $195,800 $217,550 Max. Affordable Monthly Rent (d) $3,640 $4,172 $4,678 $5,186 Amount Above (Below) Market Rate Rent $1,577 $1,630 $1,653 $1,368 Yes

17.a
Packet Pg. 230
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Introduction 7

some general discussion of the impact that changes in the in-lieu fees and adoption of commercial linkage fees might have on development feasibility in Campbell.

The developer focus group sessions focused on more general discussion of development feasibility and the potential impacts of a new commercial linkage fee and changes to the inclusionary housing in-lieu fee. Attendees were also asked to provide input on ways that the City might implement any changes in a manner that would minimize any potential negative impacts on feasibility. More than 56 individuals were invited to participate in the focus groups, approximately six attended the meeting on commercial linkage fees, and approximately 17 attended the meeting on inclusionary housing in-lieu fees.

The following subsections summarize the input received during this process.

Input Related to Fees on Both Non-Residential and Residential Development • Input on assumptions for financial feasibility analysis. Survey respondents and participants in one-on-one interviews provided information on detailed assumptions for the financial feasibility analysis, including but not limited to information on hard construction costs, soft costs, land costs, rents, sale prices, and capitalization rates in Campbell.
• Transparency and predictability of requirements. Many participants highlighted the need for transparency and predictability in the requirements that apply to new development projects, both for residential and non-residential development.

Participants that provided input on commercial linkage fees expressed a need for a clear, concise, easy to understand fee structure. Similarly, participants that provided input on inclusionary requirements and in-lieu fees emphasized a need to know the requirements before purchasing land and starting to plan a project. Both residential and non-residential developers indicated that development fees and inclusionary requirements affect the price that developers will offer for a development site. As a result, developers seek to understand the requirements that apply to a particular property before purchasing the land, and changes to those requirements after the land is purchased can impact the financial feasibility of the project. Participants also requested that Campbell designate a member of City staff to be knowledgeable in all fees that apply to development projects and act as a point of contact for developers seeking information on the fees that would apply to a proposed development project. • Applicability to mixed-use projects. One developer that participated in the process commented that mixed-use projects with residential and nonresidential uses should not be required to provide affordable units in the residential component of the project and pay a commercial linkage fee for the nonresidential component of the project, particularly when the non-residential component of the project provides City tax revenues, such as in the case of a hotel that generates transient occupancy tax.

17.a
Packet Pg. 231
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Introduction 8

Input Related to Fees on Non-Residential Development
• Financial feasibility challenges for non-residential development. Participants cited significant financial feasibility challenges for non-residential development in Campbell and expressed concern that commercial linkage fees would add to these challenges.

Participants noted that office vacancy rates remain high, and rents remain low as the office market continues to adjust to remote and hybrid work patterns following the COVID-19 pandemic. Developers noted that Campbell tends to have higher office vacancy rates and lower office rents than many nearby jurisdictions such as Cupertino and Mountain View. Meanwhile, construction costs and financing costs are comparable throughout the region and have increased substantially. Industrial developers cited similar challenges. Some developers noted that office building owners in Campbell are investors, whereas other cities have a large number of owner- occupants such as Apple and Google. One developer stated that Palo Alto will be first city in the area to experience development activity when office development activity resumes in the region, followed by cities such as Redwood City, Mountain View, and Sunnyvale, with developer interest in Campbell occurring relatively late in the market cycle. This developer noted that Campbell did not experience significant demand for new office development even during the strong office development environment that Santa Clara County experienced prior to the COVID-19 pandemic. • Timing of commercial linkage fee collection. Some developers expressed a preference for having the option to pay commercial linkage fees later in the process than is typical for impact fees. For example, some focus group participants expressed a preference for a fee that would be collected when a building is sold rather than prior to project completion. Other participants stated that deferring fees to the issuance of certificate of occupancy would help with financial feasibility. Participants noted that fees that must be paid early in the development process (e.g., at building permit issuance) must be financed, adding expensive financing costs to the project. • Phase-in process. One developer recommended phasing in any new commercial linkage fees by applying no fee to projects occurring in the near term until a set citywide square footage cap is met, then applying any new fees at a rate of half of the full rate until a second set citywide square footage cap is met, then applying the full fee rate. The intent of this strategy would be to encourage nonresidential development in Campbell in the near term as some developers may be incentivized to proceed before the fee comes into effect. In addition, the intent of this strategy would be to time the phase-in of the fee based on the strength of the market in Campbell, with the strength of the market being measured by the volume of citywide nonresidential construction activity.
• Alternatives for generating revenue for affordable housing. Some participants recommended alternatives to a commercial linkage fee to generate revenue for

17.a
Packet Pg. 232
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Introduction 9

affordable housing, such as using a portion of the City’s transient occupancy tax revenues or instituting a transfer tax on the sale of all property.

Input Related to Fees on Residential Development
• Financial feasibility of residential development. Some participants noted financial feasibility challenges for residential development in Campbell, though participants also indicated a continued interest in pursuing residential development projects in Campbell. Some developers cited inclusionary requirements as a factor that has a negative impact on feasibility. One developer recommended that the City reduce inclusionary requirements either permanently or temporarily to encourage development. One developer commented on the challenges associated with acquiring properties from long-term owners that have existing income-generating tenants and a low carrying cost for their property due to low property taxes. These property owners are often reluctant to take on the risk of a redevelopment project or to accept a one- time payout from a property sale, rather than continuing to collect revenue from these properties in their current condition. Other factors cited as challenges included design standards and CEQA requirements. High construction costs and interest rates were also cited as major factors that are negatively impacting the financial feasibility of residential development. High interest rates have not only made development more expensive but have also provided more profitable returns from a range of investment types, making it more difficult to attract investors to real estate development projects with lower rates of return.
• In-lieu fee option for residential projects. Some participants expressed support for increasing the availability of the in-lieu fee option for residential projects, which is currently available only for projects with a density of six dwelling units per acre or less in Campbell, to allow the use of an in-lieu fee for projects at higher densities. Some participants noted that the option to pay an in-lieu fee could be subject to City Council approval. Participants also requested that the City provide an option to pay an in-lieu fee to satisfy the requirements for some units and provide the remainder of the units on site. For example, a developer might have the option to pay an in-lieu fee for the requirement to provide low-income units but would provide very low-income units in the project to be eligible for the State Density Bonus. Affordable housing developers that participated in the process noted that in-lieu fees can provide an important source of funding for affordable housing developments. Funding generated by these fees helps to fill critical gaps and makes projects more competitive for state and federal funds, many of which prioritize projects that receive local funding support. • Flexibility in meeting inclusionary requirements. In addition to the flexibility to pay an in-lieu fee, developers highlighted the benefits of flexibility in meeting the inclusionary requirements more generally and allowing developers to propose creative solutions.

For example, one developer cited the example of a project with a mix of rental and for-

17.a
Packet Pg. 233
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Introduction 10

sale units that provided all affordable units as rental units rather than providing both rental units and for-sale units as affordable units.
• Project size threshold for inclusionary ordinance. In general, participants opposed reducing the size threshold for the City’s inclusionary requirements below the current threshold of ten units, and some recommended that the City consider increasing the size threshold. Participants stated that reducing the size threshold would have a negative impact on financial feasibility for infill projects and smaller projects that provide middle-income housing.

• Fee calculation methodology. Developers commented that the City method of calculating fees results in a significantly lower fee compared to other communities and should drop its current method of calculating fees (which multiplies the fee against the assumed size of the unit “not provided”) in favor of that used by other jurisdictions (which multiplies the fee based on total livable area developed in the project), including the City of Mountain View.

AB 602 Requirements
The provisions of Assembly Bill 602 (AB 602, 2021 Legislative Cycle) came into effect in January 2022, enacting new requirements for impact fees and impact fee nexus studies.

While some provisions of the legislation apply only to impact fees that apply to residential development, other provisions apply to impact fees charged on both residential and non- residential development. Key provisions of AB 602 include:
• Level of Service. AB 602 requires that impact fee nexus studies “identify the existing level of service for each public facility, identify the proposed new level of service, and include an explanation of why the new level of service is appropriate.” (See Government Code Section 66016.5(a)(2).)
• Prior Nexus Study Assumptions and Fees Collected. Pursuant to AB 602, Government Code Section 66016.5(a)(4) provides that “if a nexus study supports the increase of an existing fee, the local agency shall review the assumptions of the nexus study supporting the original fee and evaluate the amount of fees collected under the original fee.”
• Capital Improvement Plan. Under AB 602, Government Code Section 66016.5(6) states that “large jurisdictions shall adopt a capital improvement plan as a part of the nexus study.” For the purposes of this provision, Campbell is classified as a large jurisdiction.
2 • Residential Fees Proportional to Square Footage. AB 602 stipulates that “if [a nexus] study is adopted after July 1, 2022, [it must] either calculate a fee levied or imposed

2 AB 602 uses the definition of a “large jurisdiction” that is contained in Section 53559.1 of the California Health and Safety Code. This section defines a large jurisdiction as a county with a population of 250,000 or more as of January 1, 2019 or any city within that county.

17.a
Packet Pg. 234
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Introduction 11

on a housing development project proportionately to the square footage of the proposed units, or make specified findings explaining why square footage is not an appropriate metric to calculate the fees.”
• 30-Day Noticing. Under AB 602, “All studies shall be adopted at a public hearing with at least 30 days’ notice, and the local agency shall notify any member of the public that requests notice of intent to begin an impact fee nexus study of the date of the hearing.”
• Updates Every Eight Years. AB 602 stipulates that nexus studies “shall be updated at least every eight years, from the period beginning on January 1, 2022.” Appendix A provides an analysis of AB 602 compliance for the commercial linkage fee and inclusionary in-lieu fees that are evaluated in this report.

AB 1505 Requirements
California State Assembly Bill 1505 (AB 1505), which was signed into law as part of the State’s 2017 housing legislation package, provides cities with the authority to adopt inclusionary ordinances for rental developments. Inclusionary ordinances for for-sale developments were already permissible under State law prior to the adoption of AB 1505. One of the key provisions of the legislation requires that local jurisdictions with inclusionary ordinances provide developers with at least one alternative for complying with the ordinance, such as an in-lieu fee payment, land dedication, or off-site construction of affordable units.

AB 1505 provides the State Department of Housing and Community Development (HCD) with the authority to review inclusionary ordinances in some circumstances by requesting that a local jurisdiction submit an economic feasibility study. A review by HCD would be limited to inclusionary requirements on rental developments and would not apply to inclusionary requirements on for-sale developments. A feasibility study would potentially be required only in cases where all of the following apply:
• The ordinance requires more than 15 percent of units to be affordable to households with incomes equal to 80 percent of the AMI or less.
o Applicability to Campbell: The City of Campbell’s existing inclusionary ordinance does not require more than 15 percent of units to be affordable to households with incomes equal to 80 percent of the AMI or less and is thus not subject to HCD review per AB 1505.
• Either: 1) the jurisdiction did not meet at least 75 percent of its above-moderate income Regional Housing Needs Allocation (RHNA) over at least a five-year period, or 2) the jurisdiction failed to submit its annual Housing Element report for at least two consecutive years.
o Applicability to Campbell: The City of Campbell did meet at least 75 percent of its above-moderate income RHNA over the last eight-year period (RHNA 5) and has submitted its annual Housing Element report yearly.

17.a
Packet Pg. 235
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Introduction 12

• Less than ten years have passed since the adoption or amendment of the ordinance. o Applicability to Campbell: The City of Campbell’s ordinance has been updated in the past ten years.

Campbell’s ordinance does not meet any of the above criteria and thus would not trigger a review by HCD. Nonetheless, regardless of the specific provisions of AB 1505, HCD could consider the financial feasibility of the City’s inclusionary ordinance as part of its review of future City of Campbell Housing Element Updates to assess whether the requirements constitute an undue constraint on housing production.

17.a
Packet Pg. 236
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 13

2. COMMERICAL LINKAGE FEE ANALYSIS
This chapter provides an analysis of commercial linkage fees in the City of Campbell.

The first portion of this chapter consists of the nexus analysis, which identifies the relationship between the construction of new commercial space, the need for affordable housing, and the need for City funds to construct affordable housing. The nexus analysis establishes the maximum amount that the City can charge based on the need created by new development.

Local jurisdictions often charge less than the maximum amount due to financial feasibility considerations or various policy objectives.

The second portion of the chapter provides a financial feasibility analysis to evaluate how commercial linkage fees might impact the feasibility of new commercial development in Campbell. This portion of the analysis is intended to inform policy decisions regarding the implementation of commercial linkage fees, including setting fee rates.

Recommendations supported by the analysis provided in this chapter are addressed in a separate chapter of this report, along with recommendations supported by the analysis of inclusionary housing in-lieu fees.

Commercial Linkage Fee Nexus Analysis
The nexus portion of the commercial linkage fee analysis identifies the relationship, or “nexus”, between the construction of new non-residential projects and the need for affordable housing funds. The commercial linkage fee nexus analysis is based on the premise that new commercial land uses generate new employment for workers that will have a range of household incomes. Due to high housing costs in Campbell, new workers with extremely low, very low, or low household incomes will be unable to afford most market-rate housing in the City without incurring substantial cost burdens. The resulting impact from new non-residential development is an increase in workers in Campbell that face a lack of affordable housing options. The commercial linkage fee mitigates these impacts by generating revenue to support the construction of housing affordable to the new lower-income worker households.

The process for estimating the relationship between new non-residential development and the fee revenue necessary to address the resulting affordable housing need consists of the following steps:

Step 1: Identify land uses and employment densities. This step consists of identifying the land uses that will be evaluated in the nexus analysis as well as the typical employment density (i.e., square feet per worker) for each use type.

17.a
Packet Pg. 237
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 14

Step 2: Estimate worker households by income level for each land use type. For each land use, the estimated number of worker households at each income level is a function of:
• The employment density for that land use (as identified in Step 1); • The typical income distribution among workers employed in the land use (estimated as part of Step 2); and
• The typical number of workers per household among workers at each income level (estimated as part of Step 2).

This step yields an estimate of the number of lower-income worker households (i.e., those with household incomes equal to 80 percent of AMI or less) that each land use generates. This number constitutes the estimated affordable housing need associated with each land use type.

Step 3: Calculate the affordable housing financing gap. The financing gap is the amount of public subsidy needed to finance an affordable housing unit.

Step 4: Calculate the maximum nexus-based fee. The maximum nexus-based fee is equal to the number of lower-income worker households from Step 2 multiplied by the affordable housing financing gap from Step 3.

Each of these steps is discussed in more detail in the following sections.

Step 1: Land Uses and Employment Densities
This analysis evaluates the following four land uses:
• Office
• Retail/Restaurant
• Hotel
• Industrial
For each land use, this study estimated the average employment density, expressed in terms of square feet of built space per worker. The process for the Nexus Study included a review of several studies to estimate average employment densities for each land use type, including Environmental Impact Reports for projects in the region, other commercial linkage fee nexus studies, and US Energy Information Administration Commercial Buildings Energy Consumption Survey data. Actual employment density can vary depending on the specific occupants in a given use. Therefore, this study uses employment densities that may be slightly higher than is typical for some uses to avoid overestimating the impacts of new development and to provide a conservative estimate of the maximum fee rate.

For example, the office employment density shown in the table likely provides a particularly conservative estimate of the number of workers in most new office developments. This study assumes an office density of 300 square feet per worker, though many offices have

17.a
Packet Pg. 238
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 15

transitioned to employment densities of 200 square feet per worker or less over the past decade. Moreover, in many cases more recent increases in hybrid work arrangements have led to increased employment densities within offices that are occupied. This is because employers with hybrid workers are less likely to have individual offices, desks, or workstations for workers who do not report to the office every day, and to increase the use of shared workspaces, leading to a decrease in office square footage per worker. 3 While the number of
people occupying an office space on any given day may shift with higher and lower densities depending on the day, the total number of workers that report to an office location, and therefore must live within the area, may be higher for a hybrid work environment compared to an environment in which all workers report to the office every day. Due to shared workspaces for hybrid workers, as well as the lack of a need to rent or purchase office space for workers that work entirely remotely, many employers have been able to decrease their office footprint, with a higher employment density within the occupied space. While these trends have generally led to increased office vacancies, these vacancies would not be expected to impact new office developments that are constructed in the future because developers will only pursue new development once they have confidence that new space will be leased up, or in a build-to-suit scenario in which a future tenant is already identified. As a result, new office space that is built in Campbell will likely be occupied at a higher employment density than is estimated in this analysis. To the extent that this analysis underestimates employment densities, this study provides a conservative estimate of the impact of new non-residential development and of the maximum fee that the City could charge based on the relationship between new development and the need for affordable housing.

As shown below, this nexus analysis assumes an employment density of 300 square feet per employee for office uses, 500 square feet per employee for retail and restaurant uses, 1,500 square feet per employee for hotel uses, and 750 square feet per employee for industrial uses.

Table 4: Employment Densities by Land Use

Source: BAE, 2022.

3 See https://www.bisnow.com/national/news/office/office-occupiers-plan-to-shrink-footprints-even-attendance- mandates-rise-
121624?utm_source=outbound_pub_7&utm_campaign=outbound_issue_72236&utm_content=outbound_link_7 &utm_medium=email.

Office
Retail/
Restaurant Hotel Industrial
Average Sq. Ft./Employee 300 500 1,500 750
Employees per 1,000 SF 3.33 2.00 0.67 1.33

17.a
Packet Pg. 239
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 16

Step 2: Worker Households by Income Level
Worker occupations, salaries, and associated household incomes tend to vary between industries, and therefore this analysis identifies the industry sectors that might occupy each of the four land uses as a first step in identifying affordable housing need among worker households.

Researchers in economics typically categorize business establishments based on the North American Industry Classification System (NAICS), which provides numerical codes by industry sector. NAICS codes group all industries into 20 major industry categories, each identified with a two-digit code. Within each two-digit NAICS sector, more detailed sub-categories of industries are identified by three-digit NAICS codes, which are themselves comprised of more detailed subcategories of industries, up to the six-digit NAICS code level, with more digits associated with more detailed subcategories. For example, NAICS sector 72, Accommodation and Food Services, is comprised of NAICS code sectors 721 (Accommodation) and 722 (Food Services and Drinking Places). NAICS codes 721 and 722 are comprised of more detailed industries, identified by NAICS codes with four to six digits, depending on the level of specificity of the subcategories.

BAE developed a list of representative industries using NAICS-based Census industry categories likely to occupy each of the four commercial land uses. The U.S. Census Bureau uses this classification system as a basis for their system for classifying workers by industry for the American Community Survey (ACS). Each worker surveyed is categorized by a scheme which roughly corresponds to NAICS four-digit level data. Published ACS data roll the detailed categories up into several major industry categories, but a more detailed data set, the Public Use Microdata Sample (PUMS), allows analysis at a more fine-grained level. BAE queried the PUMS data set for Santa Clara County to identify the distribution of worker households by HCD income category, using the household incomes and household size for workers in the industries identified for each of the four commercial land uses. Table 5 below presents the distribution of worker households by HCD income level.

Table 5: Distribution of Worker Households by Income

Notes:

Based on a cross tabulation of Public Use Microdata Samples (PUMS) from the 2017-2021 American Community Survey.

These incomes were compared to household income limits published by the State of CA Department of Housing and Community Development (HCD) to determine the percentage of households falling into each income category. The analysis controlled for household size, to address the varying HCD income limits for each household size.

Sources: Census, American Community Survey Public-Use Microdata Sample (PUMS) 2017-2021; HCD; BAE, 2023.

Estimated Household Income as a Percent of AMI
Land Use
Extremely
Low Very Low Low Median Moderate
Above
Moderate Total
Office 2.1% 3.1% 5.0% 7.1% 7.6% 75.1% 100.0%
Retail/Restaurant 10.7% 14. 4% 17.3% 13.7% 9.6% 34.4% 100.0% Hotel 10.9% 17.8% 23.4% 13.3% 11.4% 23.3% 100.0%
Industrial 3.2% 6.5% 9.5% 10.0% 9.6% 61.1% 100.0%

17.a
Packet Pg. 240
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 17

The percentages in the household income distributions were then applied to the total workers per 1,000 square feet shown above in Table 4 to estimate the number of jobs per 1,000 square feet in each income category. The analysis translates the number of jobs into households by dividing the number of jobs by the average number of workers per worker household for each income category, using PUMS data to identify the average number of workers per worker household by household income level. As shown below in Table 6, office space generates an estimated 1.81 worker households per 1,000 square feet, including 0.21 lower-income (i.e., extremely low-income, very low-income, and low-income) worker households. Retail space generates an estimated 1.16 worker households per 1,000 square feet, including 0.54 lower-income worker households. Hotels generate an estimated 0.39 worker households per 1,000 square feet, including 0.22 lower-income worker households.

Industrial space generates an estimated 0.73 worker households per 1,000 square feet, including 0.16 lower-income worker households.

17.a
Packet Pg. 241
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 18

Table 6: Worker Households by Income Level by Land Use

Notes:
(a) Based on income limits published by HCD.
(b) Based on a cross tabulation of Public Use Microdata Samples (PUMS) from the 2017-2021 American Community Survey. These incomes were compared to household income limits published by HCD to determine the percentage of households falling into each income category. The analysis controlled for household size, to address the varying income limits for each household size. Figures for each land use are based on a combination of NAICS sectors deemed likely to be found in each land use.
(c) Total number of jobs per 1,000 SF of each land use as shown in Table 5, multiplied by the proportion of jobs in each income category.
(d) Estimated number of jobs multiplied by the average number of workers per household in each income category. (e) Average number of workers per worker household by income category calculated based on American Community Survey PUMS Analysis, 2017-2021.

Sources: American Community Survey, 2017-2021 Public Use Microdata Sample; CA Dept. of Housing and Community Development (HCD); BAE, 2023.

Step 3: Financing Gap
The next step in the nexus analysis is to calculate the cost to house the extremely low-, very low-, and low-income households calculated in Step 3 by determining the per unit “financing gap” for an affordable unit. The nexus analysis defines the financing gap for an affordable unit as the difference between the cost to develop an affordable unit and the amount of permanent financing available to support the development of the unit.

Affordable Unit Development Cost. To estimate the average construction cost for an affordable unit, BAE reviewed cost estimates provided in applications for tax credit funding that were submitted in 2022 and 2023 for proposed affordable housing developments in Santa Clara County. Cost information from applications submitted in 2022 was inflated to Estimated Household Income as a Percent of AMI (a)
Land Use
Extremely
Low
Very
Low Low Median Moderate
Above
Moderate Total
Office
Proportion of Total Jobs (b) 2.1% 3.1% 5.0% 7.1% 7.6% 75.1% 100.0% Estimated Jobs per 1,000 SF (c) 0.07 0.10 0.17 0.24 0.25 2.50 3.33 Worker Households per 1,000 SF (d) 0.05 0.07 0.09 0.13 0.14 1.32 1.81 Retail/Restaurant
Proportion of Total Jobs (b) 10.7% 14.4% 17.3% 13.7% 9.6% 34.4% 100.0% Estimated Jobs per 1,000 SF (c) 0.21 0.29 0.35 0.27 0.19 0.69 2.00 Worker Households per 1,000 SF (d) 0.16 0.18 0.20 0.15 0.11 0.36 1.16 Hotel
Proportion of Total Jobs (b) 10.9% 17.8% 23.4% 13.3% 11.4% 23.3% 100.0% Estimated Jobs per 1,000 SF (c) 0.07 0.12 0.16 0.09 0.08 0.16 0.67 Worker Households per 1,000 SF (d) 0.05 0.08 0.09 0.05 0.04 0.08 0.39 Industrial
Proportion of Total Jobs (b) 3.2% 6.5% 9.5% 10.0% 9.6% 61.1% 100.0% Estimated Jobs per 1,000 SF (c) 0.04 0.09 0.13 0.13 0.13 0.81 1.33 Worker Households per 1,000 SF (d) 0.03 0.05 0.07 0.07 0.07 0.43 0.73 Average # of Workers per Household (e) 1.34 1.57 1.78 1.83 1.83 1.89

17.a
Packet Pg. 242
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 19

2023 estimates based on the RS Means Historical Cost Index. Based on the information from these applications, BAE estimated that the average cost to construct an affordable housing unit in Campbell is approximately $720,000, as shown in Table 7 below.

Permanent Financing. To calculate the financing gap for an affordable unit, the nexus analysis assumes that an affordable housing developer is able to secure four percent LIHTC equity financing as well as a permanent loan based on the net operating income (NOI) from each unit.

This analysis assumes four percent LIHTC equity financing because this funding source is more readily available than nine percent LIHTC financing, for which there is considerable competition. However, it should be noted that four percent LIHTC financing is nonetheless limited and is unlikely to be available at the levels that would be necessary to construct all affordable units needed to address housing needs generated by new non-residential developments. In addition, inclusion of four percent tax credits as a funding source shifts some of the cost of providing affordable housing onto the public sector because the tax credits reduce the tax credit investors’ tax liability. Including four percent LIHTC financing as a source of funding in the nexus model reduces the net affordability gap show in Table 7, and therefore serves as a conservative assumption in estimating the cost associated with mitigating the housing needs generated by new non-residential development. As shown in Table 7, four percent LIHTC equity would provide an estimated $296,549 per affordable unit, based on an average cost of approximately $720,000 per unit and standard current four percent tax credit pricing assumptions.

The financing gap calculation does not include financing from other public funding sources because other sources are limited and typically require a heavily competitive application process. These sources are not sufficient to fully address affordable housing needs that arise due to the impacts of future non-residential development projects in Campbell.

Table 7 also shows the estimated permanent loan amount per unit, based on the NOI from each unit (i.e., gross income net of vacancy and expenses) and typical financing terms. The rental rates used in this analysis are the 2023 rent limits for a two-bedroom unit for households at each income level, as set by the Tax Credit Allocation Committee (TCAC) for LIHTC projects, net of an estimated utility allowance. The use of the two-bedroom rent limit provides a conservative assumption because units in affordable housing developments tend to have a large share of studio and one-bedroom units, which have lower rental rates. Using the higher two-bedroom rental rate results in more assumed rental income from the affordable units, which results in a lower financing gap and a lower maximum fee amount. The vacancy, miscellaneous income, and operating expense assumptions shown in Table 7 are also based on information provided in 2022 and 2023 applications for LIHTC funding for projects in Santa Clara County. Based on the NOI for units at each affordability level and standard financing assumptions, the supportable loan amount ranges from $38,099 per unit for units serving

17.a
Packet Pg. 243
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 20

extremely low-income households to $384,970 per unit for units serving low-income households.

Net Financing Gap. The financing gap per affordable unit is equal to the total development cost less the tax credit equity and supportable loan amount. As shown, the financing gap per affordable unit ranges from $91,493 for low-income units to $384,970 for extremely low- income units. The financing gap has an inverse relationship to the income levels that each unit serves because units with higher income targeting generate more NOI and can therefore support higher debt service payments on a loan. The financing gap figures shown in Table 7
represent the amount of permanent financing subsidy that the City of Campbell would need to provide to support the development of units at each income level, assuming that the City’s funds are leveraged with four percent tax credits and a permanent loan.

17.a
Packet Pg. 244
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 21

Table 7: Affordable Housing Financing Gaps, Campbell, 2023

Notes:
(a) Based on a 3-person household, CA Department of Housing & Community Development, 2023. (b) Maximum affordable rents for 2-bedroom units per TCAC rent limits, net of 2-bedroom utility costs as shown in Table 3. (c) Data from funding applications for recent affordable housing projects in Santa Clara County. (d) Net Operating Income divided by Debt Coverage Ratio. (e) Based on financing terms assumptions.
(f) The financing gap calculations that are shown in this table incorporate credit financing to offset a portion of the cost of constructing an affordable unit, which reduces the estimated financing gaps. However, it should be noted that projects must compete for tax credit financing, with a limited amount of funding available from tax credit financing in each round. It is unlikely that enough tax credits would be available to fully address affordable housing needs in Campbell or in the broader region, and therefore full mitigation of housing needs would likely require affordable housing developments to be constructed without tax credit financing. Therefore, the financing gaps shown in this table likely represent an underestimate of the funding that would be needed to address the full need. (g) Total Development Costs less Loan Amount and tax credit financing. (h) Average of development costs shown in low-income housing tax credit applications submitted in 2022 and 2023 for projects in Santa Clara County.
(i) A portion of Campbell is designated as a difficult to develop area (DDA), meaning that projects in that portion of the City would receive a tax credit boost. This analysis applies the DDA boost to the tax credit assumptions to provide a conservative analysis, as projects built in Campbell that are outside of a DDA would not receive a DDA boost and would have a larger financing gap.

Sources: California Tax Credit Allocation Committee, 2022 and 2023; California Department of Housing and Community Development, 2023; Novogradac, 2023; BAE, 2023.

Income Group
Extremely Low Very Low Low
Household Income Limit (a) $48,150 $80,300 $123,400
Maximum Affordable Monthly Contract Rent per Unit (b) $987 $1,790 $2,995 Annual Gross Rent per Unit $11,844 $21,480 $35,940
Less 5% Vacancy ($592) ($1,074) ($1,797)
Miscellaneous Income per Unit (Annual) (c) $153 $153 $153 Less 5% Vacancy ($8) ($8) ($8)
Total Annual Revenue per Unit $11,397 $20,551 $34,288
Less Annual Operating Expenses per Unit (c) $8,425 $8,425 $8,425 Annual Net Operating Income per Unit $2,972 $12,126 $25,863 Annual Supportable Debt Service per Unit (d) $2,584 $10,544 $22,490 Total Development Costs per Affordable Unit (e) $719,619 $719,619 $719,619 Less: Permanent Loan Amount (f) ($38,099) ($155,461) ($331,577) Less: Tax Credit Financing (4% LIHTC) (g) ($296,549) ($296,549) ($296,549) Financing Gap per Affordable Unit (h) $384,970 $267,608 $91,493 Assumptions
Financing Terms
Debt Coverage Ratio 1.15
Interest Rate 5.46%
Amortization of Loan 30
Tax Credit Assumptions
Tax Credit Price $0.890
Eligible Basis % 89.1%
DDA Boost (i) 130%
Tax Credit Term (years) 10
4% Tax Credit Percentage 4.00%
Equity Partner Share 99.99%

17.a
Packet Pg. 245
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 22

Step 4: Maximum Nexus-Based Fee
The final step in calculating the nexus-based fee is to apply the financing gap per affordable unit for each income level to the total housing need by income level for each of the non- residential uses. This is the maximum justifiable fee amount because it is directly derived from the nexus analysis described above (i.e., new commercial development generating new jobs combined into new worker households distributed by income band, and the cost to provide new affordable rental housing units to these same households). Because these fee rates are derived from the nexus analysis, these fee rates represent the maximum amount that the City of Campbell could charge based on the relationship between new non-residential development and the need for affordable housing funds. The City can choose to charge fees that are lower than this amount based on financial feasibility considerations or other factors.

The following section of this chapter evaluates commercial linkage fees in Campbell from a financial feasibility perspective.

As shown in Table 8 below, the nexus-based fees are as follows:

• Office: $47 per square foot
• Retail/Restaurant: $128 per square foot
• Hotel: $49 per square foot
• Light Industrial: $34 per square foot

17.a
Packet Pg. 246
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 23

Table 8: Maximum Legal Commercial Linkage Fees, Campbell

Note:
(a) See Table 6.
(b) See Table 7.
(c) Equal to the affordable housing need per 1,000 SF at each income level multiplied by the financing gap at the corresponding income level.
(d) Equal to the maximum possible nexus-based fee per 1,000 SF divided by 1,000.

Source: BAE, 2023.

Affordable Housing Financing Maximum Fee Maximum
Income Level Need Per 1,000 SF (a) Gap (b) Per 1,000 SF (c) Fee Per SF (d) Office
Extremely Low Income (up to 30% AMI 0.05 $384,970 $20,533 $20.53 Very Low Income (31-50% AMI) 0.07 $267,608 $17,774 $17.77 Low Income (51-80% AMI) 0.09 $91,493 $8,546 $8.55
Total 0.21 $46,853 $46.85
Retail/Restaurant
Extremely Low Income (up to 30% AMI 0.16 $384,970 $61,460 $61.46 Very Low Income (31-50% AMI) 0.18 $267,608 $49,141 $49.14 Low Income (51-80% AMI) 0.20 $91,493 $17,858 $17.86
Total 0.54 $128,459 $128.46
Hotel
Extremely Low Income (up to 30% AMI 0.05 $384,970 $20,876 $20.88 Very Low Income (31-50% AMI) 0.08 $267,608 $20,232 $20.23 Low Income (51-80% AMI) 0.09 $91,493 $8,021 $8.02
Total 0.22 $49,129 $49.13
Industrial
Extremely Low Income (up to 30% AMI 0.03 $384,970 $12,480 $12.48 Very Low Income (31-50% AMI) 0.05 $267,608 $14,677 $14.68 Low Income (51-80% AMI) 0.07 $91,493 $6,558 $6.56
Total 0.16 $33,715 $33.72

17.a
Packet Pg. 247
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 24

Commercial Linkage Fee Financial Feasibility Analysis
This section evaluates the financial feasibility of Commercial Linkage Fees in Campbell. The nexus analysis provided in the previous section of this chapter identifies maximum justifiable fee rates based on the relationship between the impact that new development creates and the fees necessary to address that impact. However, jurisdictions that adopt these fees typically charge fee rates that are lower than the maximum amount identified in the nexus analysis to account for financial feasibility considerations.

To test the financial feasibility of commercial linkage fees in Campbell, BAE prepared static pro forma financial feasibility models to evaluate the economics of developing office, retail, hotel, and industrial uses in Campbell. The purpose of the financial feasibility analysis is to determine the feasibility of new non-residential development projects under current market conditions and identify commercial linkage fee rates that could potentially be applied to new non-residential development while minimizing any impacts on development feasibility.

Non-Residential Development Trends in Campbell
Since 2010, the inventory of non-residential space in the City of Campbell has remained fairly stagnant, despite significant expansion of these uses elsewhere in Santa Clara County. In terms of new development in Campbell, Costar data indicate that the city’s most recent major office development was in 2017, with the delivery of a 200,000 square foot project. Although there has been limited new office space delivered since this project, there is an office project currently under construction in the city, amounting to roughly 166,000 square feet of new office space. In terms of new retail space, Campbell’s most recent retail development was 12,000 square feet, delivered in 2022, with a limited amount of new retail delivered in years prior. New industrial development has also been limited in Campbell, with just one recent project delivered in 2023 amounting to 7,000 square feet. Lastly, the city’s most recent new hotel development was in 2010, when a 162-room hotel (the Marriot Residences Inn) was delivered.

Prototype Projects
The financial pro forma analysis evaluated four non-residential prototypes, which are summarized in Table 9 below. These prototypes include an office prototype, a retail prototype, a hotel prototype, and a light industrial prototype. The prototypes are based on the City’s land use regulations, as well as recent projects that have been constructed or are currently in the development pipeline in Campbell. These prototypes were also informed by feedback from developers during the non-residential developer focus group meeting and one-on-one meetings with local stakeholders as well as in the developer surveys.

Methodology
The methodology used for this study involved preparation of static pro forma financial feasibility models for each of the prototypes described above. The static pro forma models represent a form of financial feasibility analysis that developers often use at a conceptual level

17.a
Packet Pg. 248
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 25

of planning for a development project, as an initial test of financial feasibility for a development concept, to screen for viability. BAE developed the various modeling inputs and assumptions needed for the financial feasibility analysis based on interviews with non- residential developers that are active in the Campbell area, responses to the developer survey, data from industry publications and databases, and other research.

Residual Land Value. The pro-forma models are structured to calculate the residual land value associated with each prototype. The residual land value for a non-residential project is equal to the value of the completed project, net of total development costs. To estimate the value of the completed project (net of developer profit), the feasibility models divide the Net Operating Income (NOI) from the project (i.e., annual income from the project net of operating expenses) by the Yield-on-Cost (YOC) developers are seeking in order to consider a project feasible. The required YOC is a function of the prevailing capitalization rate in the city, plus a spread for new development to capture a margin for developer profit. The residual land value for the non- residential projects can be summarized as follows:

Project Value Net of Developer Profit (i.e., NOI / required YOC) – Total Development Costs =
Residual Land Value

The residual land value approximates the maximum amount that a developer should be willing to pay for a given site, based on the value of the project that the developer would build on that site. In general, a development pro forma that shows a residual land value that is approximately equivalent to the typical sale price for land indicates a financially feasible project. A residual land value that is lower than the typical sale price for land typically indicates that there are financial feasibility challenges associated with constructing the project.

Residual Land Value Thresholds. Based on information provided during the developer interviews and a review of recent land transactions, this analysis assumes that land costs for the various non-residential developments range from $2 million to $6 million per acre. These land costs are dependent on the allowable uses on each site, as well as the overall market demand for each development typology. With a relatively flexible zoning code and ability to re- zone properties in the City, the value of land for each use can vary based on the site conditions, location, and expected entitlement process. However, the data indicate that land sold for future office and hotel uses tend to sell for modestly higher sale prices than land sold for industrial and retail uses, although all uses have examples of varying land transaction prices within the range listed above.

Financial Pro Forma Analysis Findings
Table 9 below shows a summary of the findings from the financial feasibility analysis. The full non-residential pro forma models are provided in Appendix B.

17.a
Packet Pg. 249
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 26

Office Development Feasibility. As shown in Table 9, the analysis found that office development feasibility is challenging under current market conditions. The main drivers of feasibility challenges are construction cost increases, high office vacancy rates, and uncertainty in the future demand for office space in Campbell. With increasing construction costs, rental rates and investor value expectations must adjust in order for projects to be considered feasible. Since the COVID-19 pandemic, office vacancy rates have increased significantly, leading to uncertainty in the office market from both developers and investors.

During this time, rents have generally remained unchanged, indicating that rents have not kept pace with construction cost increases. Similarly, with increased interest rates and uncertainty from investors, return requirements have increased, leading to a higher required threshold to yield a feasible project. These factors combine to drive the current challenges in market feasibility for new office development in Campbell.

Retail Development Feasibility. Similar to office development, the retail development prototype is currently infeasible under existing market conditions. This is similarly driven by increasing construction costs and uncertainty around future demand for standalone retail space, both in Campbell and nationally. Unlike the office prototype, the retail prototype does yield a positive residual land value, though this value is not sufficient to acquire a site at the required land purchase price noted above, leading to project infeasibility.

Industrial Development Feasibility. While the industrial development prototype has the lowest cost per square foot, due to the single-story structure, typical rents for new industrial space are slightly below the rents needed support investment in new industrial development under current conditions. Similar to the retail prototype, the industrial development prototype does yield a positive residual land value, indicating the value of the project is greater than the cost of the vertical construction. However, the resulting residual land value of roughly $280,000 per acre is well below the prevailing cost for industrial land in Campbell, indicating challenges to development feasibility.

Hotel Development Feasibility. Similar to the other non-residential prototypes, hotel development feasibility is challenging under the current construction cost and hotel demand market. While costs are relatively modest, due to the use of the cost-efficient wood-framed construction that this analysis assumes for the hotel prototype, the average daily room rental rates for hotels in Campbell are insufficient to generate the annual revenue needed to attract new developers and investors.

17.a
Packet Pg. 250
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 27

Table 9: Summary of Financial Pro Forma Analysis, Current Conditions (No Commercial Linkage Fee)

Source: BAE, 2023.

Lot Size (acres) 3.0 acres 0.5 acre 1.0 acres 2.5 ac res Gross Building Area 115,000 gsf 10,000 gsf 15,000 gsf 71,500 gsf Number of Stories 3 1 1 5
Floor Area Ratio 0.88 0.46 0.34 0.66
Parking Ratio 4.44 spaces/1,000 sf 4.10 spaces/1,000 sf 2.87 spaces/1,000 sf 1.54 spaces/room $65,802,100 total $3,652,100 total $5,350,700 total $32,728,000 total $572 per sq. ft. $365 per sq. ft. $357 per sq. ft. $251,754 per room $85,458,911 total $4,744,001 total $6,951,186 total $42,507,499 total $743 per sq. ft. $474 per sq. ft. $463 per sq. ft. $326,981 per room $70,056,563 total $5,062,500 total $7,234,615 total $36,462,689 total $609 per sq. ft. $506 per sq. ft. $482 per sq. ft. $222,333 per room ($15,402,348) total $318,499 total $283,429 total ($6,044,810) total ($5,134,116) per acre $636,999 per acre $283,429 per acre ($2,417,924) per acre Required Land Purchase
Price $3.0 - $6.0 Million per Acre $2.0 - $5.0 Million per Acre $2.0 - $4.0 Million per Acre $3.0 - $6.0 Million per Acre Feasibility Gap/Surplus
(Residual Land Value - Required
Land Purchase Price)
($8.1) - ($11.1) Million per Acre ($1.4) - ($4.4) Million per Acre ($1.7) - ($3.7) Million per Acre ($5.4) - ($8.4) Million per Acre Feasible?
3-story building with structured
parking garage on 3.0 acres
4-story, 130 room hotel development
with mostly surface parking on 2.5
acres
Single story light manufacturing
building with surface parking on 1.0
acres
Freestanding one-story retail building
with surface parking on 0.5-acre site
Office Retail HotelIndustrial
No NoNo
Hard Construction Costs
Total Development Costs
(excluding land & profit)
Project Value to Investor
Residual Land Value
No

17.a
Packet Pg. 251
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 28

Fee as Share of Development Costs
One method for assessing the impact that commercial linkage fees would have on new non- residential development involves evaluating potential fees as a proportion of total development costs. The concept underlying this approach is that fees are unlikely to have a major impact on development feasibility if the fee rate is set to be equal to a relatively low share of total development costs.

Table 10 shows various fee rate scenarios that demonstrate the commercial linkage fee rates that would be equal to one, two, three, and four percent of the total development costs for each prototype, not including land or developer profit, with total development costs based on the financial pro forma analysis provided above. As shown, fees that are equal to one to four percent of total development costs would be equal to approximately $7 to $30 per square foot for the office prototype, $5 to $19 per square foot for the retail prototype, $5 to $19 per square foot for the industrial prototype, and $6 to $24 per square foot for the hotel prototype.

All of these fee rates are lower than the maximum justifiable fee for each used that is identified in the commercial linkage fee nexus analysis presented above (see Table 8), meaning that adoption of fees at the rates shown in Table 10 would be consistent with the findings from the nexus analysis.

Table 10: Possible Commercial Linkage Fees as a Percent of Total Development Cost

Notes:
(a) Based on the financial pro formas shown in Appendix B. Does not include land or developer profit.

Sources: BAE, 2023.

Non-Residential Fee Benchmark Analysis
An evaluation of the fees that are assessed by neighboring jurisdictions can help to evaluate the impact that commercial linkage fees might have on financial feasibility in Campbell.4 To the extent that cities with comparable market conditions assess fees and continue to attract new non-residential development, this could serve as an indication that Campbell could potentially assess similar fees without making non-residential development infeasible.

4 There are various terms that jurisdictions use to refer to commercial linkage fees, including “housing mitigation fees” and “affordable housing fees”. For the purpose of this report, all fees in other jurisdictions are referred to as commercial linkage fees regardless of the specific terminology used in each jurisdiction.

Office Retail Industrial Hotel
TCD/Sq. Ft. (not including land) (a) $743 $474 $463 $595 Fee Rate Scenario
Fee Rate = 1% of Total Development Costs $7.43 $4.74 $4.63 $5.95 Fee Rate = 2% of Total Development Costs $14.86 $9.49 $9.27 $11.89 Fee Rate = 3% of Total Development Costs $22.29 $14.23 $13.90 $17.84 Fee Rate = 4% of Total Development Costs $29.72 $18.98 $18.54 $23.78

17.a
Packet Pg. 252
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 29

Conversely, if Campbell were to adopt fees that are significantly higher than the fees charged in nearby jurisdictions, this could affect developers’ willingness to pursue projects in Campbell if developers are able to find attractive development opportunities in nearby cities with lower fees. However, it should be noted that developers consider many factors when deciding where to pursue development opportunities, with the local market being a major factor, and City fees may have only a limited impact on the overall decision-making process.

The following subsections provide information on 1) Commercial linkage fees charged in nearby jurisdictions; and 2) Total impact fees charged on non-residential uses in nearby jurisdictions.

Commercial Linkage Fees in Nearby Jurisdictions
Table 11 below shows commercial linkage fees that apply in several nearby jurisdictions. The table also shows the average rental rates for office, retail, and industrial uses in each jurisdiction as well as average hotel room rates in each jurisdiction. This market information is shown to provide high-level contextual information regarding variations in the market between the jurisdictions in the table, and how the market in Campbell compares to the market in each of the comparison jurisdictions. It should be noted that the average rental rates shown are for all properties of each type in each jurisdiction, according to data from Costar, and are therefore lower than the rental rates that would be typical of most new development in each jurisdiction.

Office Fees in Other Jurisdictions. For office uses, the fee rates assessed by the jurisdictions shown in Table 11 range from $0 to $34 per square foot, with Cupertino at the top of this range. Cities with no fees include those with no commercial linkage fees on any uses, which are Los Gatos, Monte Sereno, and Saratoga. In addition, San Jose does not charge a commercial linkage fee on office developments measuring less than 50,000 square feet and has no fee for any office in the South and East San Jose Growth Areas. For larger projects in areas of the San Jose where office uses are subject to housing mitigation fees, the fee rate varies based on total project square footage and location, up to $17 per square foot. The City of San Jose applies a 20 percent discount if fees are paid in full prior to Building Permit issuance, with the full fee rate applied if paid at the scheduling of the Final Building Inspection. Mountain View, Santa Clara, and Sunnyvale all charge lower fees for the first 10,000 to 25,000 square feet of office development, with the threshold for the lower fee rate varying by city.

As shown in the table, office rents in Campbell fall approximately in the middle of the range among the comparison jurisdictions, with an average rental rate of $4.13 per square foot per month, lower than in Cupertino, Mountain View, and Sunnyvale but higher than in San Jose and Santa Clara. The two comparison jurisdictions that have average office rents that are the most similar to those in Campbell are San Jose and Sunnyvale. As noted above, commercial linkage fees in San Jose vary based on project characteristics, up to a maximum of $17 per

17.a
Packet Pg. 253
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 30

square foot. In Sunnyvale, the commercial linkage fee is equal to $23 per square foot, though the fee is charged at half of this rate for the first 25,000 square feet of a project.

Retail Fees in Other Jurisdictions. The jurisdictions in Table 11 tend to assess lower commercial linkage fee rates on retail uses than on office uses. Among the jurisdictions shown in the table, commercial linkage fees range from $0 in San Jose (regardless of location and project size), as well as in cities with no commercial linkage fee program, to $20.50 per square foot in Sunnyvale. Similar to the office fees described above, some cities have different fee rates depending on project size. For example, Mountain View applies a lower fee rate to the first 25,000 square feet of a retail project and Santa Clara does not apply a fee to retail developments measuring less than 5,000 square feet.

Campbell has the highest retail rents of all of the jurisdictions shown in the table, with an average rental rate of $3.34 per square foot per month. The two comparison jurisdictions that have average retail rents that are the most similar to those in Campbell are Cupertino and Sunnyvale, which assess commercial linkage fees on retail uses at a rate of approximately $14 and $21 per square foot per month, respectively.

Hotel Fees in Other Jurisdictions. Among the jurisdictions in Table 11 with a commercial linkage fee program, the commercial linkage fee rates that apply to hotel uses range from $3.50 per square foot in Mountain View (lower fees apply to the first 25,000 square feet) to $20.50 per square foot in Sunnyvale. Among the jurisdictions with a commercial linkage fee program, commercial linkage fees for hotels are lower than commercial linkage fees for office and equal to or higher than commercial linkage fees for retail uses.

Table 11 shows that hotel income per room in Campbell is slightly higher than in cities at the low end the range among the comparison jurisdictions. For hotel uses, Table 11 provides the Revenue per Available Room, or RevPAR, for each jurisdiction shown. RevPAR is a metric used to evaluate hotel performance and is equal to the average nightly rental rate per room multiplied by the hotel occupancy rate. As shown, as of October 2023 the 12-month RevPAR in Campbell was $109, lower than in Cupertino and Mountain View and slightly higher than in San Jose, Santa Clara, and Sunnyvale. The table does not show a relationship between cities with a low RevPAR and those with low fees for hotel uses. For example, Mountain View has the highest RevPAR of all of the cities shown ($139) and the lowest fee for hotel uses ($3.49 per square foot). Meanwhile, Sunnyvale is among the cities with the lowest RevPAR measures ($101) and has the highest fee rate ($20.50 per square foot).

Industrial Fees in Other Jurisdictions. The jurisdictions in Table 11 show wide variation in the commercial linkage fee rates for industrial uses, ranging from $3.49 per square foot in San Jose to $33.76 per square foot in Cupertino. Some cities, including Cupertino, Mountain View, and Sunnyvale, charge the same fee for industrial uses as for office uses. Other cities,

17.a
Packet Pg. 254
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 31

including San Jose and Santa Clara, charge a substantially lower fee for industrial uses as compared to the fee for office uses.

As shown in the table, industrial rents in Campbell fall approximately in the middle of the range among the comparison jurisdictions, with an average rental rate of $2.02 per square foot per month, lower than in Mountain View and Sunnyvale but higher than in San Jose and Santa Clara.
5 The two comparison jurisdictions that have average retail rents that are the most similar to those in Campbell are Santa Clara and Sunnyvale, which assess commercial linkage fees on retail uses at a rate of approximately $14 and $23 per square foot per month, respectively.

5 Costar did not have data on industrial rental rates in Cupertino as of the writing of this report.

17.a
Packet Pg. 255
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 32

Table 11: Commercial Linkage Fees in Other Jurisdictions (per net new square foot)

Notes:

The Cities of Los Gatos, Monte Sereno, and Saratoga do not currently have commercial linkage fee programs. The City of Los Gatos plans to adopt commercial linkage fees by December 2024. (a) Average office rents shown reflect average gross direct rents in each city as of the fourth quarter of 2023, according to data from Costar.
(b) Lower fee applies to first 10,000 SF.
(c) 20% discount applies if paid prior to Building Permit issuance; 100% of fee rate applies if paid at Scheduling of Final Building Inspection.
(d) Fee shown applies to developments ≥100,000 sq. ft in the Downtown and nearby area; lower fees/no fees apply to smaller projects and in other areas. No fee for any office development in the South and East San Jose Growth Areas. (e) Fee charged at ½ rate for first 20,000 SF.
(f) Fee charged at ½ rate for first 25,000 SF.
(g) Average retail and industrial rents shown reflect average NNN direct rents in each city as of the fourth quarter of 2023, according to data from Costar.
(h) Lower fee applies to first 25,000 SF.
(i) No fee applies to retail developments <5,000 SF.
(j) RevPAR is a metric used to evaluate hotel performance using the average revenue per room and is equal to the average nightly rental rate per room multiplied by the hotel occupancy rate. Figures shown reflect the RevPAR over the past 12 months as of October 2023.
(k) Fee does not apply to common area.
(l) No fee applies to industrial developments <100,000 sq. ft. or in the Edenvale & Monterey Corridor area.

Sources: Costar, 2023; BAE, 2023.

Office Current Fee Rate Avg. Monthly Rent/SF (a)
Campbell N/A $4.13
San Jose (c) (d) $17.44 $3.96
Sunnyvale (f) $23.00 $4.62
Santa Clara (e) $28. 79 $2.87
Mountain View (b) $33.00 $5.15
Cupertino $33.76 $4.76
Retail Current Fee Rate Avg. Monthly Rent/SF (g)
Campbell N/A $3.34
San Jose (c) $0.00 $2.83
Mountain View (h) $3.50 $3.02
Santa Clara (i) $7.20 $3.01
Cupertino $14.24 $3.09
Sunnyvale $20.50 $3.12
Hotel Current Fee Rate RevPAR (j)
Campbell N/A $109
Mountain View (h) $3.50 $139
San Jose (c) (k) $5.81 $101
Santa Clara $7.20 $104
Cupertino $16.88 $120
Sunnyvale $20.50 $101
Industrial Current Fee Rate Avg. Monthly Rent/SF (g)
Campbell N/A $2.02
San Jose (c) (l) $3.49 $1.37
Santa Clara (e) $14.39 $1.61
Sunnyvale (f) $23.00 $2.28
Mountain View (b) $33.00 $2.53
Cupertino $33.76 N/A

17.a
Packet Pg. 256
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 33

Total Impact Fees for Non-Residential Uses in Nearby Jurisdictions Figure 1 provides estimates of the total impact fees that would apply to each of the non- residential prototypes that are evaluated above. This analysis provides insight on how adopting commercial linkage fees in Campbell might affect the cost of impact fees in Campbell overall in relation to the cost of impact fees in neighboring jurisdictions. For example, if non- residential impact fees in Campbell were already comparable to non-residential impact fees in neighboring jurisdictions, adding commercial linkage fees could bring Campbell’s total impact fee stack to a level that would exceed what is typical in nearby jurisdictions.

As shown, Campbell’s impact fees are at the low end of the range for each use. Monte Sereno and Saratoga, both of which have very limited opportunities for non-residential development, have impact fees that are comparable to the fee rates in Campbell, while fees in Los Gatos are slightly higher than in Campbell. San Jose has higher impact fees for the office and hotel prototypes than Campbell but would assess no fees on the retail or industrial prototypes. The other cities shown, including Cupertino, Mountain View, Santa Clara, and Sunnyvale, would all charge significantly higher impact fees than Campbell for each of the nonresidential prototypes. This indicates that Campbell could assess commercial linkage fees on non- residential uses while keeping the total cost of non-residential impact fees in the City lower than or equivalent to the total cost of non-residential impact fees that apply in many other nearby jurisdictions.

17.a
Packet Pg. 257
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 34

Figure 1: Non-Residential Impact Fees in Campbell and Comparison Jurisdictions

Notes:
(a) Industrial fees do not include Transportation Impact Fees, which are calculated for industrial uses based on PM trips. (b) Fees for office and hotel include North Bayshore Precise Plan Development Fees. These fees would not apply to developments outside of this Precise Plan Area. However, other fees apply to projects in other Precise Plan Areas.

Fees do not include Water Capacity Fees, which are calculated for non-residential uses based on number of water meters and meter size. (c) Fee estimates for office include Moffett Park Specific Plan Fees. Fee estimates for retail and hotel include El Camino Real Specific Plan Fees.

Source: BAE, 2023.
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
Campbell Cupertino (a) Los Gatos Monte Sereno Mountain View (b) San Jose Santa Clara Saratoga Sunnyvale (c) Office Retail Industrial Hotel

17.a
Packet Pg. 258
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary DRAFT Campbell Affordable Housing Nexus Study | Commercial Linkage Fee Analysis 35

Summary of Findings from Commercial Linkage Fee Analysis The analysis presented above evaluates commercial linkage fees in Campbell based on a nexus analysis, an analysis of the financial feasibility of the non-residential development, fee rates based on a share of total development costs, and fees charged in other jurisdictions.

The nexus analysis identifies the following maximum justifiable fee rates:

• Office: $47 per square foot
• Retail/Restaurant: $128 per square foot
• Hotel: $49 per square foot
• Light Industrial: $34 per square foot

The financial feasibility analysis finds that all of the non-residential prototypes that were evaluated in this analysis face financial feasibility challenges in the current market due primarily to high construction costs and interest rates, low rents relative to the cost of construction, and continuing market uncertainty due to the changes in work patterns following the COVID-19 pandemic.

The analysis presented above includes calculations showing potential commercial linkage fee rates in Campbell if the City were to base fee rates on a percent of estimated total development costs. Fees that are equal to one to four percent of total development costs would be approximately equal to the following fee rates, all of which are consistent with the maximum fee rates established by the nexus analysis:

• Office: $7-$30 per square foot
• Retail/Restaurant: $5-$19 per square foot
• Hotel: $6-$24 per square foot
• Light Industrial: $5-$19 per square foot

For office uses, fees toward the low end of the range shown above would be lower than the fees that are charged in nearby jurisdictions, with the exception of some areas of San Jose.

Fees toward the top end of this range would be toward the high end of the range among nearby jurisdictions. Similarly, for retail, hotel, and industrial uses, fees toward the low end of the ranges shown above would be toward the lower end of the range of fees that are charged in nearby jurisdictions, while fees toward the top end of these ranges would be toward the high end of the range among nearby jurisdictions.

17.a
Packet Pg. 259
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Residential Financial Feasibility Analysis 36

3. RESIDENTIAL FINANCIAL FEASIBILITY

ANALYSIS
This chapter provides a financial feasibility analysis to evaluate the financial feasibility of residential development in Campbell, including an evaluation of the financial feasibility of the City’s inclusionary housing requirements. This analysis evaluates the financial feasibility of five residential development prototypes ranging from single-family homes to high-density multifamily development, described in more detail below. The findings from the financial feasibility analysis are intended to inform the City of Campbell in considering potential revisions to the inclusionary housing ordinance and the in-lieu fee. The in-lieu fee is evaluated in the following chapter of this report.

Residential Development Trends in Campbell
According to the California Department of Finance, the City’s overall housing inventory expanded by roughly 1,500 units between 2010 and 2023, for a nine percent increase over that time period. Single-family detached units accounted for the largest number of new units (720 new units), followed by multifamily developments with five or more units (506 new units), and townhome developments (290 new units). In terms of multifamily developments, CoStar data indicates that the most recent rental project delivered in Campbell was built in 2018, including nearly 120 units. The City’s 2021 Annual Housing Element Progress Report (APR) shows that three multifamily rental projects were issued certificates of occupancy in 2018, with 14, 112, and 16 units, respectively. The APR does not show any additional multifamily rental projects that were issued certificates of occupancy in subsequent years, though building permits have been issued for some multifamily rental projects in more recent years.

Based on a review of projects currently in the pipeline, either approved or seeking entitlements, the City has a select number of residential developments that were used to inform the residential prototypes. These pipeline projects range from lower-density single- family units, at roughly eight dwelling units per acre, to a condominium development with 36 dwelling units to the acre. The City’s pipeline also includes two different developments that are proposing to include both rental apartments and for-sale townhomes, achieving a blended 20 to 35 dwelling units to the acre. As currently proposed, the higher-density projects in the pipeline are at or below five stories of construction, meaning that these projects are within the height limit for wood-frame construction and do not require more expensive construction methods that are necessary for buildings with more stories.

Campbell Residential Development Standards
The City recently updated the General Plan to adjust the allowable densities and adopted objective standards which provides for greater certainty in the design and development of new residential development. With the updates, the highest-density residential land use

17.a
Packet Pg. 260
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Residential Financial Feasibility Analysis 37

designation allows between 57 and 75 dwelling units per gross acre. This density range allows for more dense projects, likely into six- or seven-story developments that include ground-floor concrete podiums to achieve higher densities. Several other land use designations allow for projects to reach up to 25 dwelling units per gross acre (or higher), which is sufficient to accommodate dense townhomes developments. The prototypes that are evaluated in this chapter are consistent with the new land use designations that have been adopted by the City.

Prototypes
The financial feasibility analysis evaluates five residential prototypes, consisting of two rental prototypes and three for-sale housing prototypes at various densities. The prototypes that were evaluated in this analysis are described in more below and summarized in Table 12.

Table 12: Summary of Residential Prototype Development Programs

Sources: City of Campbell; BAE, 2023.

Prototype 1: Lower-Density Multifamily Rental. Prototype 1 is a lower-density multifamily rental development on a two-acre site accommodating 59 total residential units, with a density of roughly 30 du/acre. The prototype evaluated abides by the City’s current inclusionary housing ordinance by including nine units affordable to a mix of very low-income and low-income households, which is equal to 15 percent of the total units. Parking for Prototype 1 would be provided in a surface parking lot, including 89 parking spaces, or 1.5 spaces per unit.

Prototype 2: Higher-Density Multifamily Rental. Prototype 2 is a multifamily rental development on a two-acre site with an assumed density of 66 du/acre, yielding a total of 132 units. The prototype includes 20 units affordable to very low-income and low-income households, which is equal to 15 percent of the total housing units. Parking for Prototype 2 would be provided in a first-floor parking podium. This prototype includes parking at a ratio of one space per unit.

Prototype 3: Condominium. Prototype 3 is a condominium development on a one-acre site with a density of 53 dwelling units per acre. The prototype evaluated in this analysis assumes the developer aligns with the City’s existing inclusionary housing ordinance, providing four units affordable to low-income households, or 7.5 percent of the total units, as well as four Prototype 1 Prototype 2 Prototype 3 P rototype 4 Prototype 5 Low-Density
M FR Re ntal
High-Density
Mixed-U se
For-Sale
Condo
For-Sale
Townhomes

Single-Family
Subdivision
Development Program
Site Size (acres) 2.0 2. 0 1.0 1.0 0.5
Total Units 59 132 53 22 6
Affordable Units 9 20 8 4 0
Average Unit Size (net sq. ft.) 839 840 1,200 1,800 2,600 Parking Spaces 89 132 53 44 12

17.a
Packet Pg. 261
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Residential Financial Feasibility Analysis 38

units affordable to moderate-income households, or another 7.5 percent of the total units.

Parking for Prototype 3 would be provided in a first-floor parking podium, at a ratio of one space per unit.

Prototype 4: Townhomes. Prototype 4 is a townhome development on a one-acre site with an assumed base land use designation allowing for 22 dwelling units per acre. The prototype evaluated in this analysis includes two units affordable to low-income households, which is equal to nine percent of the 22 total units, as well as two units affordable to moderate-income households, aligning with the City’s existing inclusionary requirements. Parking for Prototype 4 would be provided in individual garages in each unit. Parking would be provided at a ratio of

2.0 spaces per unit.

Prototype 5: Single-Family Subdivision. Prototype 5 is a single-family subdivision on a 0.5-acre parcel with six total single-family units, for a density of 12 du/acre. Due to the structure of the City’s existing affordable housing ordinance, which only requires projects with ten or more units to include affordable housing units, this project does not include any housing units affordable to low- or moderate-income households. Parking for Prototype 5 is provided in individual garages in each unit, at a ratio of 2.0 spaces per unit.

Methodology for Financial Feasibility Analysis
The methodology used for this study involved preparation of static pro-forma financial feasibility models for each of the five prototypes described above. The static pro-forma models represent a form of financial feasibility analysis that developers often use at a conceptual level of planning for a development project, as an initial test of financial feasibility for a development concept to screen for viability. The detailed pro-formas that BAE prepared for this analysis are provided in Appendix C.

The pro-forma models are structured to calculate the residual land value associated with each prototype. The residual land value for a residential rental project is equal to the value of the completed project, net of total development costs. To estimate the value of the completed project (net of developer profit), the feasibility models divide the Net Operating Income (NOI) from the project (i.e., annual income from the project net of operating expenses) by the Yield- on-Cost (YOC) developers are seeking in order to consider a project feasible. The required YOC is a function of the prevailing capitalization rate in the City, plus a spread for new development to capture a margin for developer profit. The residual land value for a residential rental project can be summarized as follows:

Project Value Net of Developer Profit (i.e., NOI / required YOC) – Total Development Costs =
Residual Land Value

17.a
Packet Pg. 262
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Residential Financial Feasibility Analysis 39

The residual land value for a for-sale project is equal to the net sale proceeds from the project (i.e., total revenue from sales after subtracting marketing costs) net of total development costs including developer profit:

Net Sale Proceeds (total revenues less marketing costs) – Total Development Costs =
Residual Land Value

The residual land value approximates the maximum amount that a developer should be willing to pay for a given site, based on the value of the project that the developer would build on that site. In general, a development pro-forma that shows a residual land value that is approximately equivalent to the typical sale price for land indicates a financially feasible project. If a developer is able to acquire land for a price that is lower than the residual land value associated with his or her project, the difference between the residual land value and the actual sale price essentially represents additional project profit. A project that generates a residual land value that is lower than typical site acquisition costs is generally not financially feasible and would be unlikely to be built.

Rental Inclusionary Financial Feasibility Findings
The following section summarizes the financial feasibility of the two rental housing prototypes.

This includes the estimated development cost of the project, as well as the project value upon completion, resulting in a residual land value. The residual land value is compared to prevailing land costs in the City of Campbell to determine the financial feasibility of the prototype. A summary of the financial feasibility findings is included below in Table 13.

Prototype 1: Lower-Density Multifamily Rental. The financial feasibility analysis indicates that the lower-density multifamily rental prototype faces development feasibility challenges in the current market. In total, the estimated total cost of the 59-unit project amounts to nearly $27.7 million, or nearly $470,000 per unit, excluding the cost of land acquisition. Hard costs for vertical construction account for the largest development cost, at nearly $18.6 million, followed by soft costs ($2.9 million), site preparation ($1.7 million), construction financing costs ($1.6 million), and City impact fees ($1.3 million). The remaining costs are associated with developer fees and surface parking costs.

To estimate the value of the property to investors, this project is estimated to generate roughly $1.3 million annually in net operating income. Based on a required yield on cost of 5.5 percent, the project value net of development profit is equal to roughly $24.4 million. Based on the comparison between project value to investors and the estimated development cost excluding land, the feasibility models indicate a negative residual land value, indicating the project is unable to support a land acquisition cost and is therefore infeasible under current market conditions.

17.a
Packet Pg. 263
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Residential Financial Feasibility Analysis 40

It should be noted that this prototype also faces feasibility challenges even with no inclusionary housing requirement. In a scenario in which all units in the prototype are market- rate units, this prototype still yields a negative residual land value. This finding indicates that changes to the City’s inclusionary requirements would not make this prototype financially feasible.

Prototype 2: Higher-Density Multifamily Rental. Similar to the lower-density multifamily rental prototype, the higher-density prototype faces financial feasibility challenges in the current market. The 132-unit higher-density multifamily rental prototype, situated on a two-acre parcel, is estimated to have a total development cost of $77.5 million, or $587,000 per unit, excluding the cost of land acquisition. The per-unit cost for this prototype is higher than the per-unit cost for the lower-density multifamily rental prototype due to the inclusion of podium parking, which significantly increases the cost per parking space. Similar to the lower-density prototype, vertical hard construction costs account for the largest development cost, followed by soft costs. Due to the provision of podium parking, however, the parking costs account for the third most significant cost, at roughly $7.2 million. The remaining costs are associated with construction financing, City impact fees, developer fees, and site preparation costs.

Based on an annual net operating income of $3.4 million, the project value net of development profit is equal to roughly $61.9 million. Based on the comparison between project value to investors and the estimated development cost excluding land, the feasibility models indicate a negative residual land value, indicating development feasibility challenges under existing market conditions.

Similar to the prior prototype, this prototype still faces feasibility challenges even without the inclusionary housing requirement.

For-Sale Residential Financial Feasibility Findings
The following section summarizes the feasibility of the three for-sale housing prototypes.

Similar to the above approach, this section summarizes the total development cost, and compares this to the total sales proceeds of the units to calculate the residual land value. To determine feasibility, the residual land value is then compared to prevailing land costs for these development typologies in the City of Campbell. A summary of the financial feasibility findings is included below in Table 13.

Prototype 3: Condominium. The pro-forma analysis indicates that the condominium prototype is infeasible, due to lower sale proceeds relative to the cost of building the prototype. The estimated project cost of the condominium prototype is approximately $45.6 million, or nearly $860,000 per unit, excluding the cost of land acquisition or developer profit. The higher development cost relative to the rental prototypes is driven by high hard costs due to higher- end finishes and more expensive construction materials in a typical condominium development, as well as the provision of larger condominium units compared to rental units.

17.a
Packet Pg. 264
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Residential Financial Feasibility Analysis 41

Similar to the other prototypes, vertical hard construction costs account for the largest share of development costs, followed by parking costs and soft costs.

As noted in prior sections, the feasibility of for-sale condominium prototypes is determined through the comparison between the revenue from one-time sales of the condominium units and the cost of delivering the units. Based on the expected sale prices, this 53-unit development generates roughly $51.8 million in gross sales proceeds. After accounting for marketing costs, the net sales proceeds amount to approximately $49.2 million, or a blended average of roughly $929,000 per unit.

Assuming condominium developers require a one-time 18-percent profit margin in order to attract equity investors, the residual land value of the higher-density condominium prototype is negative, indicating the prototype does not support a land acquisition and is therefore considered infeasible. Similar to the rental prototypes, the market-rate component of the condominium prototype is not feasible even without the affordable component.

Prototype 4: Townhomes. The pro-forma analysis indicates that the townhome prototype is financially feasible in the current market. In total, the 22-unit townhome development on one acre is estimated to cost roughly $15.6 million, or $710,000 per unit, excluding land acquisition costs and developer profit. While these units are somewhat larger than the condominium units, the development typology affords a more efficient cost of construction, leading to reduced costs on a per-square-foot basis. Still, vertical hard construction costs account for the largest share of development costs, followed by soft costs and site preparation costs.

This analysis uses an estimated average sale price of approximately $1.5 million per unit for this prototype, resulting in a total of $31.0 million in net sales revenue from the project. This total accounts for a lower sale price among the inclusionary units in the project. After allowing an 18-percent developer profit threshold, the development has an estimated residual land value of approximately $11.6 million. Based on comparable land sales, this residual land value is sufficient to acquire land suited for townhome developments, indicating the prototype is feasible and may even be able to support a slightly higher percentage of required inclusionary housing units.

Prototype 5: Single-Family Subdivision. The pro-forma analysis indicates that the single-family prototype is financially feasible in the current market. In total, the six-unit single-family subdivision on 0.5 acres is estimated to have a total development cost of roughly $5.7 million, or $950,000 per unit, excluding land acquisition costs and developer profit. Similar to the townhome prototype, the single-family development includes larger units than the high-density condominium prototype but has a lower cost of construction on a per-square-foot basis.

17.a
Packet Pg. 265
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Residential Financial Feasibility Analysis 42

Based on data on recent home sales in Campbell as reported by Redfin, as well as on input provided by developers, this analysis uses an estimated average sale price of approximately $2.6 million per unit, resulting in a total of $14.8 million in net sales revenue from the project.

The City’s inclusionary ordinance would not apply to a project of this size, and therefore this analysis assumes that all units in this development would be market-rate units. After allowing an 18-percent developer profit threshold, the development has an estimated residual land value of approximately $7.4 million, or $14.8 million per acre. Based on comparable land sales, this residual land value is higher than the typical price required to acquire land suited for single-family developments in Campbell, indicating the prototype is feasible and may even be able to support an inclusionary housing requirement.

Summary of Findings
As outlined above, the feasibility of higher-density housing prototypes in the City of Campbell is currently challenging due to construction cost increases and other external market factors.

However, lower-density prototypes including townhomes and detached single-family units are currently feasible, driven by the cheaper cost of construction for these development typologies and high sale prices. For the projects that are currently infeasible, even eliminating the city’s inclusionary housing requirement is insufficient to render projects feasible, highlighting the external factors that are driving the current infeasibility. Based on the current inclusionary housing ordinance and in-lieu fee payment option, the single-family prototype is not subject to the inclusionary housing ordinance, as it provides less than ten units. However, this prototype generates the highest residual land value, due to the high sale prices.

17.a
Packet Pg. 266
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Residential Financial Feasibility Analysis 43

Table 13: Summary of Residential Development Feasibility

Source: BAE, 2023
Prototype 1 Prototype 2 Prototype 3 Prototype 4 Prototype 5 Low-Density MFR
Re ntal
High-De ns ity M FR
Re ntal For-Sale Condo
For-Sale
Townhomes
For-Sale Single-
Family Subdivision
Development Program
Site Size (acres) 2.0 2.0 1.0 1.0 0.5
Total Units 59 132 53 22 6
Affordable Units 9 20 8 4 0
Average Unit Size (net sq. ft.) 839 840 1,200 1,800 2,600 Parking Spaces 89 132 53 44 12
Total Development Costs, E xcluding Land and Developer Profit Total Development Cost (TDC)
Excl. Land & Profit $27,688,560 $77,456,595 $45,571,665 $15,597,150 $5,694,932 TDC per Unit $469,298 $586,792 $859,843 $708,961 $949,155 TDC per Gross Building SF $466 $561 $597 $394 $365
Residual Land Value Analysis
Required Value Threshold (Rental) $24,394,015 $61,937,400 n.a. n.a. n.a.

Net Sales Revenue (for-sale) n.a. n.a. $49,245,872 $30,958,857 $14,820,000 Residual Land Value ($3,294,546) ($15,519,195) ($5,608,693) $11,609,220 $7,379,980 Residual Land Value per Acre ($1,647,273) ($7,759,597) ($5,608,693) $11,609,220 $14,759,960 Required Land Purchase Price
per Acre $3.0 - $6.0 Million $4.0 - $8.0 Million $4.0 - $8.0 Million $2.5 - $8.0 Million $6.0 - $10.0 Million Feasibility Gap/Surplus
per Acre ($4.6) - ($7.6) Million ($11.8) - ($15.8) Million ($9.6) - ($13.6) Million $3.6 - $9.1 Million $4.8 - $8.8 Million Feasible under current
conditions?
No No No Yes Yes

17.a
Packet Pg. 267
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary DRAFT Campbell Affordable Housing Nexus Study | Inclusionary Housing In-Lieu Fee Analysis 44

4. INCLUSIONARY HOUSING IN-LIEU FEE

ANALYSIS
This chapter analyzes potential changes to the City’s inclusionary housing in-lieu fees. In-lieu fees are a common option that cities offer as an alternative to providing inclusionary units within a project, though cities differ in terms of the extent to which the in-lieu fee option is available for all projects or only in specific circumstances. In addition, cities differ in terms of the extent to which in-lieu fees are set at levels that are likely to incentivize developers to pay the fee or to provide inclusionary units on site. In general, a relatively high in-lieu fee tends to create an incentive for developers to provide inclusionary units on site, because the cost of the fee exceeds the cost to provide the inclusionary units. Conversely, a low in-lieu fee tends to create an incentive for developers to pay the fee rather than provide inclusionary units.

As discussed in the introduction to this report, Campbell currently allows developments with a density of six dwelling units per acre or less to pay an in-lieu fee rather than provide affordable units within the development. For projects providing rental units, the in-lieu fee is equal to $21.50 per project square foot. For projects providing owner-occupied units, the in-lieu fee is equal to $34.50 per project SF. Based on the current ordinance, only projects with ten or more units are subject to the inclusionary housing ordinance. Due to the density limits for projects that are eligible for the in-lieu fee option and the size threshold for the inclusionary ordinance, the City has only seen a limited number of projects that are subject to the inclusionary housing ordinance and fall within the density range for projects that are eligible to pay the in-lieu fee.

This chapter includes technical analysis for calculating the in-lieu fee as well as a benchmark analysis that evaluates in-lieu fees and total residential impact fees in comparison jurisdictions. Recommendations for implementation supported by the analysis provided in this chapter are addressed in the Policy Options section of this report, along with recommendations supported by the analysis of commercial linkage fees.

17.a
Packet Pg. 268
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Inclusionary Housing In-Lieu Fee Analysis 45

Inclusionary Unit Construction Cost Approach
Many cities base their inclusionary in-lieu fees on the cost to construct an affordable unit, often through a formula that applies on a project-by-project basis that is tied to the cost of construction. To inform the City’s consideration of an inclusionary in-lieu fee, this subsection provides an analysis of the cost to construct inclusionary units in each of the five residential prototypes analyzed in this report.

For inclusionary rental units, this analysis estimates the cost to construct an inclusionary unit based on the per-unit construction costs shown in the pro-formas for the rental developments.

The analysis then subtracts the amount of debt service that an affordable unit can support from the total construction cost to estimate the construction cost net of supportable debt.

This approach recognizes that an affordable unit generates rental income to offset the cost of constructing the unit, albeit at a lower rate than needed to cover construction costs.

For inclusionary ownership units, this analysis estimates the cost to construct an inclusionary unit based on the per-unit construction costs shown in the pro-formas for the ownership developments. The analysis then subtracts the restricted sale price from the total construction cost to estimate the construction cost net of sales proceeds. Like the approach used for the rental units, this approach recognizes that an inclusionary unit generates revenue from the sale of the unit to offset the cost of constructing the unit, though this revenue is not sufficient to cover construction costs.

For all of the development prototypes, this analysis included the required developer profit and the land acquisition. Land costs were estimated at the midpoint of the ranges for each prototype as shown in Table 13.

As shown in Table 14 Table 1below, based on the construction cost approach calculations, the in-lieu fee amount based on the construction cost approach ranges from $107 to $115 per net residential square foot for the rental prototypes. The lower-density rental prototype yields the lower in-lieu fee amount, due to a lower per-unit development cost for that prototype.

Using the construction cost approach, the in-lieu fee for the for-sale units is equal to $96 per net square foot for the condominium prototypes, $70 per net square foot for the townhouse prototype, and $83 per net square foot for the single-family prototype.

17.a
Packet Pg. 269
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Inclusionary Housing In-Lieu Fee Analysis 46

Table 14: Construction Cost In-Lieu Fee Amount by Prototype

Source: BAE, 2024.

Prototype 1 Prototype 2 Prototype 3 Prototype 4 Prototype 5 Low- High- For-Sale
Density Density For-Sale For-Sale Single-Family
MFR Rental MFR Rental Condo Townhome Subdivision
Development Program
S
ite Size (acres) 2.0 2.0 1.0 1.0 0.5
Total Units 59 132 53 22 6
Affordable Units 9 20 8 4 0
Total Net Project SF 49,500 110,900 63,600 39,600 15,600 Estimated Land Cost (per unit) $152,542 $90,909 $113,208 $238,636 $666,667 Construction Cost Approach
Total Development Cost Per Unit, Incl. Land $646,336 $703,737 $1,148,199 $1,118,165 $1,906,670 Rental Prototypes
Average Monthly Rent per Affordable Unit (a) $1,738 $1,793 n.a. n.a. n.a.

Monthly Net Operating Income per Affordable Unit $401 $454 n.a. n.a. n.a.

Supportable Debt per Affordable Unit $58,174 $65,787 n.a. n.a. n.a.

For-Sale Prototypes
Avg. Net Sales Revenue per Affordable Unit (b) n.a. n.a. $384,484 $429,464 $476,313 Development Cost minus Sale Price per Aff. Unit n.a. n.a. $763,715 $688,701 $1,430,357 In-Lieu Fee Per Affordable Unit $588,162 $637,951 $763,715 $688,701 $1,430,357 Constructoin Cost In-Lieu Fee Amount
Total In-Lieu Fee Amount $5,293,459 $12,759,012 $6,109,723 $2,754,805 $1,287,321 Fee per Net Residential Sq. Ft. (c) $107 $115 $96 $70 $83

17.a
Packet Pg. 270
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary DRAFT Campbell Affordable Housing Nexus Study | Inclusionary Housing In-Lieu Fee Analysis 47

Point of Indifference Approach
One factor to consider when setting an in-lieu fee is the “point of indifference”, or the fee amount that is generally equivalent to the cost of providing inclusionary units in a project.

Fees that are set higher than this amount will generally incentivize developers to provide affordable units instead of paying the in-lieu fee because providing the units will be more cost- effective. Conversely, fees that are set lower than this amount will generally incentivize developers to pay the in-lieu fee instead of providing the affordable units. The following section summarizes the methodology for setting this fee amount, as well as the potential fee amount for each of the prototypes.

Methodology
The cost of an in-lieu fee and the cost to provide inclusionary units on site are not directly comparable, because an in-lieu fee affects total development costs, whereas providing inclusionary units on site affects either the project’s operating income and the resulting project value (for rental developments) or sale proceeds (for ownership developments). In other words, payment of an in-lieu fee affects the cost side of the residual land value calculation, while providing inclusionary units on site affects the project value or sale proceeds side of the residual land value calculation.

This analysis evaluated the point of indifference by determining the in-lieu fee rate for each prototype that would result in the same feasibility results as providing inclusionary units. The analysis involved creating an alternate version of the pro-forma for each prototype. The pro- formas that were used for this portion of the analysis differed from the pro-formas that were used to test the feasibility of the inclusionary requirements in that the alternate versions do not have any affordable inclusionary units and instead include an in-lieu fee as part of the total development cost. To identify the point of indifference in-lieu fee for each prototype, the analysis determined the fee that would result in the same residual land value as in the inclusionary scenario. For example, as shown in Table 13 above, with the inclusionary units Prototype 4 results in a residual land value of $11.6 million. To identify the point of indifference fee rate for Prototype 4, an alternate version of the Prototype 4 pro-forma was created with no inclusionary units. An in-lieu fee was then added to the development costs for in this alternate version of the pro-forma, with that fee rate set such that the residual land value associated with the project would be $11.6 million, or equal to the residual land value in the inclusionary scenario for the same prototype.

The methodology for estimating the point of indifference fee rate for the single-family prototype involved creating two alternate versions of the single-family prototype pro forma.

One alternate version evaluated a prototype that is similar to the single-family prototype discussed elsewhere in this report, but with seven units rather than six and a commensurate increase in the site size, with one of the seven units as an inclusionary unit (i.e., approximately 15 percent of a seven-unit project). The second alternate version evaluated the same seven-

17.a
Packet Pg. 271
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Inclusionary Housing In-Lieu Fee Analysis 48

unit single-family prototype with an in-lieu fee rather than an inclusionary unit, following the same methodology that was used for the other prototypes as described above.

The resulting in-lieu fee rates for each prototype approximate the “point of indifference,” or the inclusionary in-lieu fee payment that would have approximately the same cost impacts as providing affordable units within the project. In other words, if all else were equal, a residential rental project that pays the “point of indifference” fee rates shown in Table 15 would generally support the same residual land value as a project that provides the affordable units on site.

Findings
As shown below in, the rental prototypes yield a “point of indifference” in-lieu fee amount between $55.50 and $63.50 per net residential square foot. The for-sale prototypes yield a “point of indifference” in-lieu fee amount of $61.50 per net residential square foot for condominium prototypes, $92.00 per net residential square foot for townhomes, and $90.50 per net residential square foot for single-family homes.

Table 15: Point of Indifference In-Lieu Fee Amount by Prototype

Note:
(a) Based on proformas shown in Appendix C.

Source: BAE, 2024.

The “point of indifference” fee rates identified in this analysis are sensitive to the relationship between the market-rate rent and the affordable rent for rental projects and the market-rate sale price and the affordable sale price for ownership projects, as well as other assumptions used in the financial modeling. Consequently, the fee rate that represents the point of indifference will vary between projects and over time based on variations in the difference between market-rate and affordable rents and sale prices. Nonetheless, the analysis presented in this subsection provides general insight on the in-lieu fees levels that are comparable in cost to providing inclusionary units in a project.

Residential Fee Benchmark Analysis
The following subsections provide information on 1) Inclusionary housing in-lieu fees charged in nearby jurisdictions; and 2) Total impact fees charged on residential uses in nearby Prototype 1 Prototype 2 Prototype 3 Prototype 4 Prototype 5 Low- High- For-Sale
Density Density For-Sale For-Sale S ingle-Family
MFR Rental MFR Rental Condo Townhome Subdivision
Point of Indifference
In-Lieu Fee Amount (a) $2,747,250 $7,042,150 $3,911,400 $3,643,200 $1,647,100 Existing Fee per SF $21.50 $21.50 $34.50 $34.50 $34.50
Additional Fee per SF $34.00 $42.00 $27.00 $57.50 $56.00 Total Fee per SF $55.50 $63.50 $61.50 $92.00 $90.50

17.a
Packet Pg. 272
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Inclusionary Housing In-Lieu Fee Analysis 49

jurisdictions. The fee information provided in this section may inform Campbell’s process for identifying an in-lieu fee. To the extent that cities with comparable market conditions assess fees and continue to attract new residential development, this could serve as an indication that Campbell could potentially assess similar fees without making residential development infeasible. Conversely, if Campbell were to adopt fees that are significantly higher than the fees charged in nearby jurisdictions, this could affect developers’ willingness to pursue projects in Campbell if developers are able to find attractive development opportunities in nearby cities with lower fees.

However, inclusionary housing in-lieu fees have little or no effect on the financial feasibility of residential development projects in jurisdictions where use of the in-lieu fee is generally restricted to specific types of projects, and therefore the information provided below should be considered within a broader policy context. As discussed in more detail below, many jurisdictions place restrictions on developers’ ability to satisfy inclusionary requirements through payment of an in-lieu fee. These restrictions may include requiring City Council approval to pay an in-lieu fee, allowing in-lieu fees only for the purpose of meeting a requirement for a fractional unit, and allowing in-lieu fees only for small projects. In cases where the use of an in-lieu fee is restricted, most projects may be required to provide inclusionary units rather than pay the fee, making the specific in-lieu fee rate irrelevant to the financial feasibility of most projects. Similarly, the cost of an in-lieu fee is often not included in the total fees that apply to a residential development project because projects often provide inclusionary units rather than pay an inclusionary in-lieu fee.

Inclusionary In-Lieu Fees in Nearby Jurisdictions
Table 16 below shows the inclusionary housing in-lieu fees that apply in several nearby jurisdictions. The table also shows the median home sale prices in each jurisdiction as well as the average rental rates for multifamily rental units in each jurisdiction. This market information is shown to provide high-level contextual information regarding variations in the market between the jurisdictions in the table, and how the market in each jurisdiction shown compares to the market in Campbell. It should be noted that the median sale prices and average rental rates shown are for all properties of each type in each jurisdiction, according to data from Costar and Redfin, and are therefore lower than the rental rates and sale prices that would be typical of most new development in each jurisdiction.

As shown, almost all of the jurisdictions shown in Table 16 have restrictions on developers’ ability to satisfy inclusionary requirements through payment of an in-lieu fee. These restrictions include requiring City Council approval to pay an in-lieu fee, allowing in-lieu fees only for the purpose of meeting a requirement for a fractional unit, and allowing in-lieu fees only for small projects. The exception is San Jose, which allows developers to choose whether to pay an in-lieu fee, provide inclusionary units, or pursue an alternative method of compliance.

17.a
Packet Pg. 273
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Inclusionary Housing In-Lieu Fee Analysis 50

Among the jurisdictions shown in Table 16 that have established in-lieu fee rates, in-lieu fees for for-sale developments generally range from $21 per square foot (Cupertino, for some development types) to $144 per square foot (Mountain View, for rowhouses or townhomes).6 Campbell’s current in-lieu fee rate for for-sale developments is higher than the current in-lieu fee rates in Cupertino and San Jose and lower than the in-lieu fee rates in Mountain View.

Campbell is unique among the jurisdictions shown in that Campbell has a single in-lieu fee rate for all for-sale development rather than a fee that varies by for-sale development type.

Among the jurisdictions shown in Table 16 that have established in-lieu fee rates, in-lieu fees for rental developments generally range from approximately $22 per square foot (San Jose, in moderate market areas) to $111 per square foot (Mountain View).7 Campbell’s current fee rate is toward the low end of this range, at $21.50 per square foot.

Rather than set fee rates, some jurisdictions set fees as a percent of building permit valuation (Los Gatos) or sale price (Sunnyvale, for for-sale developments). Some jurisdictions use a formula based on the difference between the affordable sale price and the market-rate sale price (Santa Clara, for for-sale projects).

While fee rates in nearby jurisdictions often provide insight on the fee rates that are financially feasible, in the case of an in-lieu fee the fee rates shown in Table 16 do not necessarily reflect financially feasible fee rates. As noted above, most of the jurisdictions shown place restrictions on developers’ ability to pay an in-lieu fee and prefer that developers provide affordable inclusionary units. As a result, these jurisdictions may charge relatively high fee rates that would not be feasible for most projects in order to incentivize developers to provide inclusionary units rather than pay the fee. These cities may continue to experience residential development activity, with new development providing affordable units rather than paying an in-lieu fee, provided that the inclusionary requirements themselves are financially feasible.

Methodology for calculating fees: Jurisdictions in California generally determine the in-lieu by multiplying the fee by total net new livable square feet in a project. Alternatively, some jurisdictions may elect to calculate the fee by only the net new livable square feet of the affordable units that would have been included on site (the City of Campbell historically has followed this approach). The former method is recommended as it results in higher fees to support affordable housing production.

6 San Jose has a lower fee rate of $14.54 per square foot for for-sale developments with 10-19 units that are built at 90 percent or more of the allowable density.
7 San Jose and Sunnyvale have lower in-lieu fees for some specific project types.

17.a
Packet Pg. 274
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Inclusionary Housing In-Lieu Fee Analysis 51

Table 16: Inclusionary Housing In-Lieu Fees in Nearby Jurisdictions

Notes:
(a) Median home sale prices shown are the median home sale price in October 2023, according to data from Redfin.

Median Home Project Size Threshold
For-Sale Units Fee Rate Sale Price (a) f or Inclusionary Req's Fee Based on Affordable Unit Square Footage
Campbell (b) $34.50 per SF $1,750,000 10 or more units
Cupertino (c) $3,015,000 N/A; requirements apply to
Detached Single-Family $21.36 per SF all project sizes
Small Lot Single-Family or Townhome $23.49 per SF
M
ultifamily Attached Townhome, Apartment, Condo $28.48 per SF Fee Based on Total Project Square Footage
Mountain View (e) $1,830,500 N/A; requirements apply to Single-Family Detached and Condominiums $63 per SF all project sizes Rowhomes and Townhomes $144 per SF
S
an Jose (e) $1,350,000 10 or more units
Developments with 20+ units $29.07 per SF
Developments with 10-19 units at <90% allowable density $29.07 per SF Developments with 10-19 units at >90% allowable density $14.54 per SF Fee Based on Construction Cost or Sale Price
Santa Clara (g) Difference b/t the market value and $1,505,000 N/A; requirements apply to the affordable sale price, multiplied all project sizes by the fractional amount due
Los Gatos (d) 6% of building permit valuation $2,382,875 5 or more units Sunnyvale (h) 7% of contract sales price $1,703,000 7 or more units of all units in project
Avg. Rent Project Size Threshold
Rental Units Fee Rate R ent per SF (i) for Inclusionary Req's Fee Based on Affordable Unit Square Footage
Campbell (b) $21.50 per SF $3.18 10 or more units
Cupertino (c) $3.74 N/A; requirements apply to
Up to 35 du/acre $28.48 per SF all project sizes
Over 35 du/acre $35.60 per SF
Fe
e Based on Total Project Square Footage
Mountain View (e) $111 per SF $3.92 N/A; req's apply at all sizes San Jose (f) $3.01 10 or more units
Strong Market Areas
Developments with 20+ units $49.99 per SF
Developments with 10-19 units at <90% allowable density $49.99 per SF Developments with 10-19 units at >90% allowable density $25.00 per SF Moderate Market Areas
Developments with 20+ units $21.74 per SF
Developments with 10-19 units at <90% allowable density $21.74 per SF Developments with 10-19 units at >90% allowable density $10.87 per SF Qualifiying High Rises in Downtown Planned Growth Area $0 Santa Clara (g) $28.79 per SF $3.40 N/A; req's apply at all sizes Sunnyvale (h) $3.47 3 or more units
Projects with 3-6 units $15.00 per SF
Projects with 7+ units $30.00 per SF
Fee Based on Construction Cost
Los Gatos (d) 6% of building permit valuation $3.17 5 or more units

17.a
Packet Pg. 275
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Inclusionary Housing In-Lieu Fee Analysis 52

(b) In-lieu fees can be paid for projects with a density of six dwelling units per acre or less. (c) In-lieu fees can only be used to satisfy the inclusionary requirement for projects with fewer than 7 units or for fractional units in projects with more than 7 units if the fractional unit is less than 0.5. If the fractional unit is equal to 0.5 - 0.99 of a unit, the BMR unit requirement is rounded up and the project must provide one additional BMR unit. Projects with less than 7 units may provide one unit or pay the fee. All other alternatives to providing on-site inclusionary units are subject to City Council approval.
(d) Inclusionary program applies to projects that include five or more residential units; Fee option is available only in limited cases and at the Town's discretion.
(e) Fees are charged per net new livable SF. In-lieu fees can be paid for fractional units in projects with less than 7 units.

In projects with 7+ units, in-lieu fees can be paid for a fractional unit that is equal to less than 0.5 of a unit. An in-lieu fee payment to satisfy the entire inclusionary requirement requires City County approval. Applicant must demonstrate that in- lieu fee payment will further the City's housing goals to a greater extent than providing units on site. Fees must be greater than the value of providing the units on site and higher than the in-lieu fees for fractional units that are cited above. (f) All projects may choose to pay the in-lieu fee rather than construct units. Additionally, projects can choose a mixed compliance option to provide a portion of units on-site and pay an adjusted in-lieu fee. The adjusted in-lieu fee rate varies depending on the number and affordability of the units provided. In-lieu fees provided above are for a development providing no inclusionary units on-site. Fee exemption for qualifying high-rises is set to expire. (g) Fees apply only to projects with fewer than 10 units or to satisfy the requirement for a fractional unit in projects with 10 units or more. All residential developments with 10 or more units are required to construct affordable units onsite. Projects with fewer than ten units may either provide one affordable unit or pay an in-lieu fee. Construction of one single-family home or duplex on a lot of record is exempt.
(h) Inclusionary requirements apply to for-sale projects with 7 or more units or rental projects with 3 or more units. City Council approval required for in-lieu fee option for projects with 7+ units. (i) Average multifamily rent shown reflects the average monthly asking rent per square foot among multifamily properties in each jurisdiction as of the third quarter of 2023, according to data from Costar.

Sources: City of Campbell; City of Cupertino; City of Los Gatos; City of Mountain View; City of San Jose; City of Santa Clara; City of Sunnyvale; BAE; 2023.

Total Impact Fees on Residential Uses in Nearby Jurisdictions Figure 2 provides estimates of the total impact fees that would apply to each of the five residential prototypes that are evaluated in this report in Cambell as well as in neighboring jurisdictions. This analysis provides insight on how Campbell compares to neighboring jurisdictions in terms of the total impact fees that apply to new residential development.

As shown, Campbell’s impact fees are toward the middle of the range for each prototype. Los Gatos, Monte Sereno, and San Jose would generally assess lower impact fees than Campbell for each of the prototypes, while impact fees in Saratoga would be comparable to Campbell’s impact fees. The other cities shown, including Cupertino, Mountain View, Santa Clara, and Sunnyvale, would all charge higher impact fees than Campbell for each of the residential prototypes. It should be noted that the fee estimates shown in Figure 2 do not include inclusionary housing in-lieu fees because most of the jurisdictions shown require that most projects provide inclusionary units rather than pay in-lieu fees. The information provided in Figure 2 indicates that Campbell is generally in line with neighboring jurisdictions in terms of the impact fees that apply to new residential development projects, with significantly lower residential impact fees than many nearby jurisdictions.

17.a
Packet Pg. 276
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Inclusionary Housing In-Lieu Fee Analysis 53

Figure 2: Residential Impact Fees in Campbell and Comparison Jurisdictions

Notes:

Fee calculations include park fees for Campbell, Cupertino, Mountain View, San Jose, Santa Clara, Saratoga, and Sunnyvale. These fees would be reduced to the extent that projects provide park space in accordance with each jurisdiction's requirements. Fee calculations do not include inclusionary housing in-lieu fees because most of the jurisdictions shown require that most projects provide inclusionary units rather than pay in-lieu fees. (a) Fees do not include Traffic Impact Mitigation Fee, which are calculated based on new average daily trips generated (b) Fee estimates do not include any Specific Plan Area fees. Some Specific Plan Areas have fees that would result in higher total fees than shown.

Source: BAE, 2023.
$1,750,000
$3,015,000
$2,382,875
$7,775,000
$1,830,500
$1,350,000
$1,505,000
$3,775,000
$1,703,000
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
Campbell Cupertino Los Gatos (a) Monte Sereno Mountain View San Jose Santa Clara Saratoga Sunnyvale (b) Median Home Sale Price, October 2023
Estimated Fees per Unit
High-Density MFR Low-Density MFR Condominium Townhouse Single-Family Median Home Sale Price

17.a
Packet Pg. 277
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary DRAFT Campbell Affordable Housing Nexus Study | Inclusionary Housing In-Lieu Fee Analysis 54

Summary of Findings from Inclusionary In-Lieu Fee Analysis The analysis presented above evaluates potential inclusionary housing in-lieu fees in Campbell based on: 1) the cost to construct an inclusionary unit; and 2) the “point of indifference” in-lieu fee rate. Table 17 summarizes the findings from the construction cost approach and the point of indifference approach.

Table 17: Summary of Findings from In-Lieu Fee Analysis

Source: BAE, 2024.

If City decision-makers generally prefer that developers provide inclusionary units rather than pay an in-lieu fee, the City should either place limits on the circumstances under which developers may satisfy inclusionary requirements through the payment of an in-lieu fee or adopt fee rates that are higher than the fee rates established through the point of indifference approach. Restrictions on the circumstances under which developers can pay the in-lieu fees could include allowing a fee payment for small projects or for requirements resulting in fractional units, but not allowing a fee payment to meet the entire inclusionary requirement for larger projects. Campbell could also require discretionary approvals for the use of an in-lieu fee in most circumstances.

Prototype 1 Prototype 2 Prototype 3 Prototype 4 Prototype 5 Low- High- For-Sale
Density Density For-Sale For-Sale Single-Family
MFR Rental MFR Rental Condo Townhome Subdivision
Construction Cost Approach (per SF) $106.94 $115.05 $96.06 $69.57 $82.52 Point of Indifference Approach (per SF) $55.50 $63.50 $61.50 $92.00 $90.50

17.a
Packet Pg. 278
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Policy Options 55

5. KEY FINDINGS & POLICY OPTIONS
This chapter presents key findings and policy options based on the analysis presented in the preceding chapters of this report. These policy options and recommendations include the potential adoption of a commercial linkage fee and adjustments to the inclusionary housing in- lieu fee.

Affordable Housing Need
The potential implementation of a commercial linkage fees and adjustment to the inclusionary housing in-lieu fee are being considered in the context of significant affordable housing needs as demonstrated both by US Census Analyze the proportion of lower-income households relative to all households within the jurisdiction, using the latest data from the United States Department of Housing and Urban Development’s (HUD) Comprehensive Housing Affordability Strategy (CHAS) database. According to this data, 28 percent of Campbell holds earn less than 50 percent of Median Family Income (MFI), with an additional 11 percent earning between 51 and 80 percent of MFI.

Additionally, for the 6th Housing Element Update Cycle (2023-2031), the City of Campbell has a Regional Housing Needs Allocation (RHNA) obligation totaling 2,977 units, including 1,186 units for lower-income households, or approximately 40 percent of the total. The recommended inclusionary housing set aside of 15 percent, as described further, is significantly lower than the need as documented both by HUD and the City’s RHNA allocation.

The AB 602 Analysis included in Appendix A below further explores the appropriateness and proportionality of the proposed commercial linkage fees and adjustment to the inclusionary housing in-lieu fees.

Commercial Linkage Fee Policy Options
The analysis presented in this report supports the following options related to the potential adoption of commercial linkage fees in Campbell in furtherance of Housing Element Program H-1b:

Program H-1b: Commercial Linkage Fee: Establish an affordable housing impact fee that will apply to nonresidential development to provide an additional local source of revenue to support production of affordable housing.

Commercial Linkage Fee Policy Option 1: Do not adopt commercial linkage fees.

City decision-makers may wish to refrain from adopting any commercial linkage fees at this time. This option is based on the non-residential financial feasibility analysis that was presented in this report, which found that office, retail, hotel, and industrial development faces financial feasibility challenges in the current market.

17.a
Packet Pg. 279
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Policy Options 56

Commercial Linkage Fee Policy Option 2: Charge a fixed amount for all non-residential uses.

To simplify fee collection and make the City’s fee schedule easy to understand, Campbell could adopt a single commercial linkage fee rate that would apply to all non-residential uses.

If the City pursues this approach, BAE recommends a fee that would be consistent with a fee rate that represents a low percentage of total development costs for all uses to which the commercial linkage fee would apply. For example, if the City adopts commercial linkage fees for office, retail, hotel, and light industrial uses, the recommended fee rate would be $9 per square foot or less, which is equal to two percent of estimated total development costs (not including land or developer profit) for retail and light industrial uses.

Commercial Linkage Fee Policy Option 3: Adopt a Tiered Commercial Linkage Fees Based on Building Type.

Policy option 3 involves adopting commercial linkage fees with lower fees for specific uses based on various policy goals. If the City pursues this option, fees for some uses could be set at up to two percent of total development costs according to Policy Option 2, while fees for other uses would be set at lower rates, per the following maximum fee rates:

• Office: up to $15 per square foot
• Retail/Restaurant: up to $9 per square foot
• Hotel: up to $12 per square foot
• Light Industrial: up to $9 per square foot
Implementation Consideration: Timing of Fee Payment
• Allow fees to be paid after building permit issuance. Some of the developers that participated in the stakeholder focus groups highlighted the financial burden associated with paying commercial linkage fees at building permit issuance due to the high cost of financing for up-front development costs. While many jurisdictions require payment of all impact fees at building permit issuance, some allow fees to be paid at later stages in the development process, such prior to issuance of a certificate of occupancy.

Implementation Consideration: Exemptions and Discounts
• Discount or exempt certain land uses and project sizes. Some jurisdictions with commercial linkage fees choose not to charge fees or to charge low fees on specific non-residential uses and project sizes. For example, some jurisdictions take this approach with hotel and/or retail uses, often because these uses generate other revenues for the City (i.e., transient occupancy tax or sales and use tax), and as a result jurisdictions choose to incentivize these uses. It should be noted that transient occupancy tax and sales and use tax revenues accrue to a jurisdiction’s General Fund and therefore are not reserved for affordable housing.
• Provide an exemption for the non-residential component of vertical mixed-use projects.

Some jurisdictions provide commercial linkage fee exemptions for the commercial

17.a
Packet Pg. 280
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Policy Options 57

component of mixed-use projects, such as ground floor retail space in a residential building. For example, the City of Santa Clara provides an exemption for “Commercial square footage within a mixed-use development where the commercial space is integrated into a single building that also includes residential development at a density of thirty (30) dwelling units per acre or greater and where the commercial square footage does not exceed twenty thousand (20,000) square feet.” Jurisdictions may adopt these types of exemptions to incentivize the provision of ground-floor retail space in residential projects. In some cases, these exemptions are adopted because local codes require ground-floor commercial space in some areas, and an exemption may reflect that the jurisdiction is electing not to charge a fee on space that developers are required to build, and which is often not profitable.

Implementation Consideration: Phasing
For projects that do not meet the exemption criteria, options for phasing in a fee include:
• No phase-in process. This option would consist of applying the full adopted fee rate to all non-exempt projects following adoption.
• Phase in based on time. For example, Campbell could charge no fee for one-year after adoption.

Note: Housing development projects submitting preliminary applications under SB 330 (Housing Crisis Act of 2019) will generally not be subject to any in-lieu fee, even for the commercial component of a mixed-use project, provided that they submit their application prior to the effective date of the new fees.

Implementation Consideration: Fee Calculation Methodology Jurisdictions will typically adopt fee calculation methodologies that factor in existing commercial space in cases where a new development is replacing an existing use. For example, in the hypothetical case of a 300,000 square foot commercial development replacing an existing 100,000 square foot development, the fee would be based on the net square footage of 200,000 square feet. The following potential implementing language and formula reflects accepted practices in comparable California jurisdictions:

The housing impact fee for nonresidential development projects shall be charged on a per- square-foot basis for all net new usable commercial floor area, including all additions where floor area is increased, with a specific per-square-foot amount set for each nonresidential land use category and amount of floor area. The amount of the fee shall be computed as follows:

Fee = (sq. ft. of new land use * relevant commercial linkage fee fee) - (sq. ft. of existing land use * relevant commercial linkage fee).
"Useable Commercial Area" means the total horizontal floor area in square feet of all stories of all non-residential building areas measured to the inside surface of exterior walls as well as any covered non-residential area outside of the building envelope that is covered or partially

17.a
Packet Pg. 281
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Policy Options 58

covered by structures, beams, slats, or projections when viewed from above. This area specifically includes hallways, lobbies, elevators, stairwells, and mechanical rooms. This definition specifically excludes parking areas (including covered parking areas), areas shared with residential use in a mixed-use development, as well as areas covered by cornices, eaves, sills, and canopies cumulatively measuring less than 30-inches in depth as measured to the outside surface of exterior walls, as well as ground level paving, pools, spas and decks, landscape features, and light wells.

Inclusionary Housing In-Lieu Fee Findings and Policy Options As new market rate units are added to the Campbell market, the wage earners living in these units spend money for goods and services in the local economy which in turn creates demand for lower-wage retail and service sector jobs. The policy basis for establishing an inclusionary housing requirements and in-lieu fee is in part based on the need for Campbell to generate resources to serve the housing needs of lower-wage worker households related directly to new market-rate development.

The analysis presented in this report supports various policy options related to inclusionary housing in-lieu fees in Campbell in furtherance of Housing Element Program H-1a:

Program H-1a: Inclusionary Housing Ordinance Implementation: Amend the Inclusionary Housing Ordinance to offer developers a menu of options for achieving affordability, adjusting the percentage of units required to be affordable depending on the degree of affordability achieved (i.e., moderate-, low-, very low-, and extremely low- income).

This section also provides implementation considerations for the phasing and method of calculation fees that should be considered after selecting a preferred initial option.

Inclusionary Housing Policy Option 1: Retain Existing Fees This policy option would entail no change in the base fees charged in-lieu of providing on-site units (i.e., 10-units; For-Sale: $34.50; For-Rent: $21.50). This approach would also maintain the City’s existing method of calculating fees, and result in significantly less revenue than all other jurisdictions included in the benchmarking analysis.

Inclusionary Housing In-Lieu Fee Policy Option 2: Increase in-lieu fees up to the point of indifference fee rate of $60 with a threshold of five (5) units.

Table 15 shows the in-lieu fee rates that represent the “point of indifference” for each prototype, or the point at which the cost of the fee would be approximately equivalent to the cost of providing inclusionary units in a project. These fees are approximately $60 per net square foot for rental developments and range from approximately $60 per net square foot to $90 per net square foot for for-sale developments, depending on the development type. In this

17.a
Packet Pg. 282
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Policy Options 59

policy option, the City would adopt a single in-lieu fee of $60 for all unit types to be applied as follows:
• Threshold: would apply inclusionary ordinance requirements (i.e., 15% affordability) to all projects of five (5) or more units
• Provide option to pay fees for any fractional requirement not resulting in a whole unit o Exception: Projects between 5-6 units may pay in-lieu fee instead of providing units
Note: This option deviates from the possible amendments contemplated by Policy H-1a, as it would require projects of seven (7) or more units to provide an affordable housing unit, when the fractional requirement exceeds 0.5 of a unit. As a result, this policy option would result in the production of more affordable housing units, fewer fees, than initially contemplated by Policy H-1a of the Housing Element.

Inclusionary Housing In-Lieu Fee Policy Option 3: Same as Policy Option 2 but with a threshold of seven (5-6) units
Table 15 shows the in-lieu fee rates that represent the “point of indifference” for each prototype, or the point at which the cost of the fee would be approximately equivalent to the cost of providing inclusionary units in a project. These fees are approximately $60 per net square foot for rental developments and range from approximately $60 per net square foot to $90 per net square foot for for-sale developments, depending on the development type. In this policy option, the City would adopt a single in-lieu fee of $60 for all unit types to be applied as follows:
• Threshold: Would apply to all project of seven (7) or more units • Provide option to pay fees for any fractional requirement not resulting in a whole unit
Note: This option also deviates from the possible amendments contemplated by Policy H-1a, as it would exempt projects under 7 units from paying fees or providing units. As a result, this policy option would result in the generation of less fees than initially contemplated by Policy H- 1a of the Housing Element.

Implementation Considerations: Phasing
The options for phasing in the in-lieu fee rate are similar to those described under the commercial linkage fees. As deemed appropriate, the in-lieu fees could be phased in over time as follows:

• No phase-in process. This option would consist of applying the full adopted fee rate to all non-exempt projects following adoption.

17.a
Packet Pg. 283
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Policy Options 60

• Phase in based on time (staff preferred). For example, Campbell could charge no fee for one year after adoption.

Implementation Considerations: Fractional Units
Under options 2 and 3, the City would provide the option for developers to pay a fee to address requirements for fractional units. Campbell’s current inclusionary housing ordinance requires that developers round up to the nearest whole unit when there is a requirement for a fractional inclusionary unit of 0.5 or greater and allow the developer to round down to the nearest whole unit when there is a requirement for a fractional inclusionary unit less than 0.5. The City could allow payment of an in-lieu fee to satisfy the requirement for any fractional unit (i.e., up to .99 of a unit requirement) or just for fractional unit requirements when less than 0.5. The application of the in-lieu fee to fractional unit requirements could be implemented regardless of whether the City reduces the project size threshold for inclusionary requirements as described under Inclusionary Housing In-Lieu Fee Policy Options 2 or 3.

This study support two options for addressing “fractional” units, as follows:

• Option 1: Retain the existing 15 percent inclusionary requirement as adopted, in which fractions less than .5 round down, fractions .5 and over round up to a full unit. • Option 2: Modify the 15 percent inclusionary requirement such the following options apply when there is a fractional obligation:
o Provide a unit to satisfy any fractional obligation (i.e., 0.1); or o Pay a fee to satisfy any fractional obligation when one of the following conditions apply:
 Any fractional obligation for projects with 5 or 6 units  The fractional obligation is less than .5 for projects 7 units and over The benefits of applying the in-lieu fee to fractional units include generating some fee revenue from fractional units, though the magnitude of the revenue is likely to be small. In addition, charging an in-lieu fee for fractional units would reduce the magnitude of the difference in requirements for less than 0.5 units and requirements for 0.5 units or more. Reducing this gap in requirements may reduce the extent to which developers seek to keep projects smaller to avoid a requirement for an entire new inclusionary unit.

The specific formula for determining the in-lieu fee for fractional units would be as follows:

Total Fee = ($60 per square foot) * (Fractional unit/Total inclusionary units required) * (Livable Area)

"Livable area" means the total square footage of the interior of all dwelling units within a residential development that a tenant can occupy and use as measured from the interior face of the exterior walls. This area specifically includes all living spaces, kitchens and bathrooms, and usable closet and storage spaces within a dwelling unit. This definition specifically

17.a
Packet Pg. 284
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Policy Options 61

excludes common areas such as hallways, elevators, stairwells, mailrooms, multi-use rooms, indoor pool rooms, mechanical rooms, lobbies, parking areas, areas of Accessory Dwelling Units (ADUs) and Junior Accessory Dwelling Units (JADUs), and areas shared with a non- residential use in a mixed-use development.

Implementation Considerations: Affordability Term
The City currently has a 55-year affordability term for rental units and a 45-year term for for- sale units. To have a more standardized approach, the City should consider establishing a 55- year affordability term for both rental and for-sale units, in-line with best practices from other jurisdictions.

Implementation Considerations: Construction Cost Index
As the City implements a new policy, the fees will periodically need to be updated to keep pace with rising construction costs. This can be accomplished using one of two primary construction costs indices, as follows:

• California Department of General Services (DGS) Construction Cost Index CCCI:
https://www.dgs.ca.gov/RESD/Resources/Page-Content/Real-Estate-Services- Division-Resources-List-Folder/DGS-California-Construction-Cost-Index-CCCI • Engineering News Record ("ENR") Construction Cost Index for the San Francisco area published by McGraw Hill on January 1 of every year, or its successor publication

Implementation Considerations: Financial Feasibility of Fee Option for Smaller (six- and nine- unit) Townhome Developments
Stakeholder feedback obtained during this study process included some concerns from townhome developers about the potential impact of a new $60 per square foot in—lieu fee on smaller scale (six or nine unit) townhome developments. Leveraging the same financial feasibility models described in depth above and in Appendix C below, BAE adjusted the project size, land area and fee assumptions to model both six-unit and nine-unit projects. In each case, the imposition of a $60 fee does not present a constraint on feasibility with each prototype achieving an 18% profit as percent of total development costs and a positive land residual in excess of prevailing land prices in the market area.

17.a
Packet Pg. 285
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Appendix A: AB 602 Analysis 62

APPENDIX A: AB 602 ANALYSIS
Assembly Bill 602 (AB 602, 2021) enacted new requirements for impact fees and impact fee nexus studies. This appendix provides an analysis of commercial linkage fees in relation to AB 602 requirements. Relevant provisions of AB 602 include:

1. Level of Service. AB 602 requires that impact fee nexus studies “identify the existing level of service for each public facility, identify the proposed new level of service, and include an explanation of why the new level of service is appropriate.” (See Government Code Section 66016.5(a)(2).)

2. Prior Nexus Study Assumptions and Fees Collected. Pursuant to AB 602, Government Code Section 66016.5(a)(4) provides that “if a nexus study supports the increase of an existing fee, the local agency shall review the assumptions of the nexus study supporting the original fee and evaluate the amount of fees collected under the original fee.”

3. Capital Improvement Plan. Under AB 602, Government Code Section 66016.5(6) states that “large jurisdictions shall adopt a capital improvement plan as a part of the nexus study.” For the purposes of this provision, Campbell is classified as a large jurisdiction.8

Commercial Linkage Fee AB 602 Analysis
This section provides discussion and analysis related to the commercial linkage fee analysis to comply with the provisions of AB 602 as described above. The subsections below are numbered to correspond to the four provisions described above.

1. Level of Service
A commercial linkage would generate the funding necessary to finance the construction of new publicly-assisted affordable housing units to serve new workers in Campbell as the City’s employment base grows. Therefore, in the context of the commercial linkage fee, the level of service can be defined in terms of the number of publicly-assisted affordable housing units in Campbell per worker employed in Campbell.

Existing Level of Service. According to the City of Campbell’s 2023-2031 Housing Element, there are 617 publicly-assisted affordable housing units in Campbell. This total consists of units that received public funding in exchange for providing affordable housing with a deed restriction of maintain units as affordable for a set time period. In addition to these units, the Housing Element identifies three deed-restricted affordable housing units that were created

8 AB 602 uses the definition of a “large jurisdiction” that is contained in Section 53559.1 of the California Health and Safety Code. This section defines a large jurisdiction as a county with a population of 250,000 or more as of January 1, 2019 or any city within that county.

17.a
Packet Pg. 286
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Appendix A: AB 602 Analysis 63

through the City’s inclusionary housing program. These units did not receive public funding and therefore are not factored into this analysis. According to US Census American Community Survey (ACS) data collected between 2018 and 2022, there are an estimated 24,377 people that work in Campbell. Based on these figures, there are currently approximately 0.025 publicly-assisted affordable housing units per worker in Campbell, as shown in Table A-1 below.

Proposed New Level of Service. Table A-1 shows an analysis of the level of service that would be supported by commercial linkage fees, assuming fee rates equal to two percent of total development costs as shown in
Table 10 (fees shown in Table A-1 are rounded to the nearest dollar). As shown, commercial linkage fee rates at that level would support the construction of an estimated 0.020 units of publicly-assisted affordable housing per new worker in office space, 0.019 units of publicly-assisted affordable housing per new worker in retail space,

0.060 units of publicly-assisted affordable housing per new worker in hotel space, and 0.042 units of publicly-assisted affordable housing per new worker in industrial space.

Table A-1: Level of Service Analysis, Commercial Linkage Fee

Notes:
(a) Based on ACS data collected between 2018 and 2022.
(b) See Table 4.
(c) See Table 6.
(d) Equal to the affordable housing need per 1,000 SF multiplied by the percentage of the full need mitigated by the fee rate shown.
(e) Equal to the affordable housing need per 1,000 SF mitigated by the fee rate shown divided by the estimated number of workers per 1,000 SF.

Sources: US Census American Community Survey, 2018-2022; City of Campbell Housing Element Update, 2023; BAE, 2023.

Appropriateness of New Level of Service. Table A-1 above indicates that commercial linkage fees for some uses could support a higher level of service than currently exists in Campbell, depending on whether the Campbell City Council adopts commercial linkage fees and, if so, what the adopted fee rates are. While the current level of service is 0.025 publicly-assisted affordable housing unit per worker, the hotel and industrial fees shown in Table A-1 would Existing Level of Service
Workers in Campbell (a) 24,377
Publicly-Supported Affordable Housing Units 617
Publicly-Supported Affordable Housing Units per Worker 0.025 Retail/
Proposed New Level of Service Office Restaurant Hotel Industrial Fee Necessary to Address Full Housing Need $46.85 $128.46 $49.13 $33.72 Possible Fee Rate $15.00 $9.00 $9.00 $12.00
% of Full Need Mitigated by Possible Fee Rate 32% 7% 18% 36% Estimated Number of Workers per 1,000 SF (b) 3. 33 2.00 0.67 1.33 Affordable Housing Need per 1,000 SF (c) 0.21 0.54 0.22 0.16 Affordable Housing Need per 1,000 SF Mitigated by Possible Fee Rate (d) 0.07 0.04 0.04 0.06 Affordable Housing Units Funded per Worker (e) 0.020 0.019 0.060 0.042

17.a
Packet Pg. 287
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Appendix A: AB 602 Analysis 64

support larger numbers of publicly-assisted affordable housing units per worker. A higher level of service would be appropriate in part because the current level of service is insufficient to provide enough affordable housing for Campbell’s workforce. There is a persistent shortage of available affordable housing units throughout the region, and affordable housing developments consistently have long waiting lists for any available units.

The existing shortage of affordable units is also apparent in the number of households that are overpaying for housing in Campbell.
9 As discussed in Campbells 2023-2031 Housing
Element, approximately 85 percent of extremely low-income households, 71 percent of very low-income households, and 59 percent of low-income households are overpaying for housing.

These data indicate a significant gap in the number of lower-income households living in Campbell and the availability of affordable housing.

Commercial linkage fees will not address these existing deficiencies in the affordable housing inventory. However, supporting a higher level of service through commercial linkage fees could help to prevent new non-residential development in Campbell from continuing to replicate the same gaps in affordable housing delivery that exist under the current level of service. Even at a higher level of service, the City is unlikely to charge commercial linkage fees that would fully mitigate the need for affordable housing that new non-residential development is anticipated to create. As a result, some gaps in affordable housing delivery would remain unless mitigated through other means.

Furthermore, the higher level of service is appropriate based on the City of Campbell’s Regional Housing Needs Allocation (RHNA). The RHNA is the number of housing units that the City is required to plan to accommodate during each eight-year Housing Element cycle. Prior to the start of each Housing Element cycle, the State determines the total RHNA for each region in California. Each region then goes through a process to distribute the RHNA among each of the cities and counties in the region. Under California law, each city and county in California is required to prepare a Housing Element every eight years and must demonstrate through the Housing Element that the jurisdiction has the ability to accommodate its RHNA during the eight-year Housing Element period. The RHNA for each city and county includes an allocation of units that will be affordable to low-income and moderate-income households, and the Housing Element must demonstrate that the jurisdiction has the ability to accommodate units at each affordability level.

For the 6
th Housing Element Update Cycle (2023-2031), the City of Campbell has a RHNA obligation totaling 2,977 units, including 1,186 units for lower-income households. This a significant increase from the 5th Housing Element Update Cycle (2015-2023), when the City’s RHNA obligation totaled 933 units, including 391 units for lower-income households.

9 A household is typically considered to be overpaying for housing if it spends more than 30 percent of its gross income on housing-related expenses, such as rent, utilities, or mortgage payments.

17.a
Packet Pg. 288
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Appendix A: AB 602 Analysis 65

Campbell’s 2023-2031 Housing Element reports that the City permitted 15 housing units that are affordable to lower-income households during the 5th Housing Element cycle. This suggests that Campbell will need to issue building permits for significantly more affordable housing units during the 6th Housing Element Cycle to address the City’s RHNA. While a commercial linkage fee would not be intended to fully address the City’s RHNA and would not be sufficient to do so, these figures demonstrate a need for the City of Campbell to enhance the level of service provided by the City’s affordable housing inventory relative to existing conditions.

2. Prior Nexus Study Assumptions and Fees Collected
The City of Campbell does not have an existing commercial linkage fee, and therefore this nexus study does not relate to the increase of an existing fee. As a result, the provisions of AB 602 that relate to reviewing the assumptions of a prior nexus study and evaluating the amount of fees collected under the original fee do not apply to the commercial linkage fee analysis.

3. Capital Improvement Plan
Under AB 602, Government Code Section 66016.5(6) states that “large jurisdictions shall adopt a capital improvement plan as a part of the nexus study.” For the purposes of this provision, Campbell is classified as a large jurisdiction. Government Code Section 66002 further states that “any local agency which levies a fee subject to [the California Mitigation Fee Act] may adopt a capital improvement plan, which shall indicate the approximate location, size, time of availability, and estimates of cost for all facilities or improvements to be financed with the fees.”

A jurisdiction’s capital improvement plan identifies infrastructure improvements and public facilities projects that the jurisdiction intends to implement, though some portions of the capital improvement plan may be unfunded and would be implemented only if funding becomes available in the future. Affordable housing developments are not typically included in a jurisdiction’s capital improvement plan, in part because local jurisdictions do not typically have a direct role in constructing affordable housing. Instead, local jurisdictions with access to affordable housing funds typically provide these funds to affordable housing developers or operators. These affordable housing developers or operators then use the funds to construct new affordable housing units, acquire existing housing units for the purpose of creating or maintaining affordable housing, or rehabilitate existing affordable units.

Although affordable housing developments are not included in a formal capital improvement plan, the City of Campbell’s 2023-2031 Housing Element Update provides a plan to accommodate the City’s RHNA. This plan includes an identification of sites where all 1,186 lower-income units in the City’s RHNA could be built over the eight-year Housing Element period. These units would be located within Campbell City limits, and will likely generally correspond to the approved, under construction, and pipeline projects identified in the Housing Element, as well as projects that could be constructed on the opportunity sites that

17.a
Packet Pg. 289
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Appendix A: AB 602 Analysis 66

the Housing Element identifies. Projects with affordable units will vary in size based on the specific opportunities for affordable housing development that could occur during the planning period and may range from ten units to over 100 units (or from five units to over 100 units under possible policy options).

Information provided in recent applications for tax credit financing for new affordable housing developments in Santa Clara County indicates that the cost to build a publicly-assisted affordable housing unit currently averages an estimated $720,000 per unit. Funds from commercial linkage fees would help to finance a portion of the cost to construct these units but are not anticipated to be sufficient to fund the construction of all of the lower-income units in the City’s RHNA. The total cost that will be financed through the fees will depend on the amount of revenue generated by commercial linkage fees during the Housing Element cycle.

In addition to commercial linkage fees, construction of these units will be financed by other public and private funding sources, including but not limited to low-income housing tax credits.

A portion of the RHNA will also be met through other City housing programs, including the City’s inclusionary ordinance.

17.a
Packet Pg. 290
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Appendix B: Non-Residential Pro Formas 67

APPENDIX B: NON-RESIDENTIAL PRO FORMAS
This appendix provides the detailed pro formas for non-residential uses that were used for the commercial linkage fee analysis provided in this report. This appendix also includes a description of the key assumptions used in the non-residential pro formas.

Key Assumptions

Hard Costs: Hard costs are the costs associated with the physical construction of a building, including all construction materials and labor. The hard cost assumptions are primarily based on information provided by developers that were interviewed for this study. The study also relies on published sources and BAE’s experience with recent projects in the Bay Area to cross- check the information provided by developers and to fill gaps in the information that developers were able to provide.

Soft Costs: This analysis assumes that soft costs are equal to 20 percent of hard costs. This soft cost estimate includes engineering, architecture, and CEQA costs, as well as City cost- recovery fees for planning, permitting, and entitlements, but does not include financing costs or impact fees. Financing costs and impact fees were calculated separately and included in total development costs as separate line items.

Financing Costs: This analysis assumes a 6.5 percent interest rate on construction loans and loan fees equal to 1.0 percent of the loan amount. These assumptions are consistent with information provided by developers interviewed for this study as well as BAE’s experience with recent projects in the region.

Impact Fees: BAE calculated impact fees for each prototype based on the City’s impact fee schedule, which includes storm drain impact fees and roadway maintenance impact fees.

Commercial Rental Rates: For the office, retail, and industrial prototypes, this analysis uses rental rates that are based on information provided by developers during the developer interviews and cross-checked against data from Costar.

Hotel Operating Revenues and Expenses. This analysis uses data from Costar to estimate hotel room rates and occupancy rates. The hotel market continues to be impacted by the COVID-19 pandemic, with lower room rates and occupancy rates than in 2019, but has demonstrated a significant recovery from the most severe impacts of the pandemic. This analysis uses the 2019 average occupancy and room rates for hotel properties in Campbell on the basis that developers would likely need to anticipate a return to pre-pandemic conditions in order to pursue future hotel development.

17.a
Packet Pg. 291
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Appendix B: Non-Residential Pro Formas 68

Capitalization Rate and Yield on Cost: The capitalization rate (or cap rate) is defined as the net operating income that a property generates divided by the estimated sale price of a stabilized building. To support new development, investors require a spread between the capitalization rate and the project’s Yield on Cost, calculated as the project’s net operating income divided by the total development costs. To inform the current cap rates and required yield on cost metrics to support new development, this analysis uses information from developer interviews, Costar, and the CBRE United States Cap Rate Survey for the first half of 2023 to estimate cap rates for each of the prototypes.

17.a
Packet Pg. 292
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Appendix B: Non-Residential Pro Formas 69

Table B-1: Financial Pro Forma – Office Prototype

Sources: BAE, 2023.

Development Program Assumptions Development Cost Analysis Si
te Hard Costs
Site area (acres) 3.0 Site w ork $2,613,600
Site area (sq. ft.) 130,680 Hard construction costs $34,500,000 TI allow ance costs $10,925,000
Structure Parking - surface $1,163,500
Building Size - Gross SF 115,000 Parking - structured $16,600,000 Common Area SF 5,750 Parking - underground $0
Net Rentable SF 109,250 Total Hard Costs $65,802,100
Common Area as a % of Gross 5% Hard Costs per Built Sq. Ft. $572 Parking (spaces) 511 Soft Costs
Surface 179 Soft costs $13,160,420
Structured 332 Impact fees $260,630
Underground 0 Commercial Linkage Fee $0
Developer Fee $2,632,084
Development Cost & Income Assumptions Total Soft Costs $16,053,134 Hard Costs Construction Financing Costs
Site Work, per site SF $20 Construction Period Interest $3,112,545 Construction hard costs, per SF $300 Loan Fees $491,131 Tenant improvements, per rentable SF $100 Total Financing Costs $3,603,677 Parking - surface, per space $6,500
Parking - structured, per space $50,000 Total Development Costs Parking - underground, per space $90,000 excl. Land Value $85,458,911 Cost per built sq. ft. $743
S
oft Costs
Soft Costs as a % of Hard Costs 20% Feasibility Analysis Developer Fee as % of Hard Costs 4%
Projected Income
Impact Fees & Extractions Gross Annual Revenue $6,227,250 Impact Fees (per SF) $2.27 Less Vacancy ($622,725)
Net Operating Income (NOI) $5,604,525
Operating R evenues & E xpenses
Rental Rate (per SF per month, NNN) $4.75 Project Value to Investor $70,056,563 Vacancy rate 10% Less Development Costs ($85,458,911)
Residual Land Value ($15,402,348)
Construction Financing Residual Land Value/Acre ($5,134,116) Loan to cost ratio 60%
Interest rate 6.5%
Loan fees (points) 1%
Loan period (months) 18
Draw dow n factor 65%
Capitalization Rate 7.00%
Developer Profit Spread 1.00%
Required Yield on Cost 8.00%

17.a
Packet Pg. 293
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Appendix B: Non-Residential Pro Formas 70

Table B-2: Financial Pro Forma – Retail Prototype

Sources: BAE, 2023.

Development Program Assumptions Development Cost Analysis Si
te Hard Costs
Site area (acres) 0.5 Site w ork $435,600
Site area (sq. ft.) 21,780 Hard construction costs $2,300,000 TI allow ance costs $650,000
Structure Parking - surface $266,500
Building Size - Gross SF 10,000 Parking - structured $0 Parking - underground $0
Parking (spaces) 41 Total Hard Costs $3,652,100
Surface 41 Hard Costs per Built Sq. Ft. $365
Structured 0
Underground 0 Soft Costs
Soft costs $730,420
Development Cost & Income Assumptions Impact fees $15,349 C
ommercial Linkage Fee $0
Hard Costs Developer Fee $146,084
Site Work, per site SF $20 Total Soft Costs $891,853
Construction hard costs, per SF $230
Tenant improvements, per rentable SF $65 Construction Financing Costs Parking - surface, per space $6,500 Construction Period Interest $172,784 Parking - structured, per space $50,000 Loan Fees $27,264 Parking - underground, per space $90,000 Total Financing Costs $200,048 Soft Costs Total Development Costs
Soft Costs as a % of Hard Costs 20% excl. Land Value $4,744,001 Developer Fee as % of Hard Costs 4% C ost per built sq. ft. $474 Developer Profit as % of Total Project Costs 0%
Feasibility Analysis
Impact Fees & Extractions
Misc. Impact Fees, not including CLF (per SF) $1.53 Projected Income Gross Annual Revenue $450,000
Operating R evenues & E xpenses Less Vacancy ($45,000)
Rental Rate (per SF per month, NNN) $3.75 Net Operating Income (NOI) $405,000 Vacancy rate 10%
Project Value to Investor $5,062,500
Construction Financing Less Development Costs ($4,744,001) Loan to cost ratio 60% Residual Land Value $318,499
Interest rate 7% Residual Land Value/Acre $636,999
Loan fees (points) 1%
Loan period (months) 18
Draw dow n factor 65%
Capitalization Rate 6.50%
Developer Profit Spread 1.50%
Required Yield on Cost 8.00%

17.a
Packet Pg. 294
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Appendix B: Non-Residential Pro Formas 71

Table B-4: Financial Pro Forma – Industrial Prototype

Sources: BAE, 2023.

Development Program Assumptions Development Cost Analysis Site Hard Costs
Site area (acres) 1.0 Site w ork $871,200
Site area (sq. ft.) 43,560 Hard construction costs $4,200,000 Parking - surface $279,500
Structure Parking - structured $0
Building Size - Gross SF 15,000 Parking - underground $0 Total Hard Costs $5,350,700
Parking (spaces) 43 Hard Costs per Built Sq. Ft. $357
Surface 43
Structured 0 Soft Costs
Underground 0 Soft costs $1,070,140
Impact fees $23,197
Development Cost & Income Assumptions Commercial Linkage Fee $0 Developer Fee $214,028
Hard Costs Total Soft Costs $1,307,365
Site Work, per site SF $20
Construction hard costs, per SF $280 Construction Financing Costs Tenant improvements, per rentable SF $0 Construction Period Interest $253,173 Parking - surface, per space $6,500 Loan Fees $39,948
Parking - structured, per space $50,000 Total Financing Costs $293,121 Parking - underground, per space $90,000
Total Development Costs
Soft Costs excl. Land Value $6,951,186
Soft Costs as a % of Hard Costs 20% Cost per built sq. ft. $463 Developer Fee as % of Hard Costs 4%
Feasibility Analysis
Impact Fees & Extractions
Misc. Impact Fees, not including CLF (per SF) $1.55 Projected Income Gross Annual Revenue $495,000
Operating R evenues & E xpenses Less Vacancy ($24,750)
Rental Rate (per SF per month, NNN) $2.75 Net Operating Income (NOI) $470,250 Vacancy rate 5%
Project Value to Investor $7,234,615
Construction Financing Less Development Costs ($6,951,186) Loan to cost ratio 60% Residual Land Value $283,429
Interest rate 7% Residual Land Value/Acre $283,429
Loan fees (points) 1%
Loan period (months) 18
Draw dow n factor 65%
Capitalization Rate 5.00%
Developer Profit Spread 1.50%
Required Yield on Cost 6.50%

17.a
Packet Pg. 295
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Appendix B: Non-Residential Pro Formas 72

Table B-5: Financial Pro Forma – Hotel Prototype

Sources: BAE, 2023.

Development Program Assumptions Development Cost Analysis Si
te Hard Costs
Site area (acres) 2.5 Site w ork $2,178,000
Site area (sq. ft.) 108,900 Hard construction costs $26,000,000 FF&E $3,250,000
Structure Parking - surface $1,300,000
Building Size - Gross SF 71,500 Parking - structured $0 Number of Hotel Rooms 130 Parking - underground $0
Total Hard Costs $32,728,000
Parking (spaces) 200 Hard Costs per Room $251,754
Surface 200
Structured 0 Soft Costs
Underground 0 Soft costs $6,545,600
Impact fees $132,301
Development Cost & Income Assumptions Commercial Linkage Fee $0 D
eveloper Fee $1,309,120
Hard Costs Total Soft Costs $7,987,021
Site Work, per site SF $20
Construction hard costs, per room $200,000 Construction Financing Costs FF&E, per room $25,000 Construction Period Interest $1,548,189 Parking - surface, per space $6,500 Loan Fees $244,290
Parking - structured, per space $50,000 Total Financing Costs $1,792,479 Parking - underground, per space $90,000
Total Development Costs
Soft Costs excl. Land Value $42,507,499
Soft Costs as a % of Hard Costs 20% C ost per room $326,981 Developer Fee as % of Hard Costs 4% Cost per built sq. ft. $595 Developer Profit as % of Total Project Costs 0%
Feasibility Analysis
Impact Fees & Extractions
Misc. Impact Fees, not including CLF (per SF) $1.85 Projected Income Gross Revenue $9,376,120
Operating R evenues & E xpenses Less Expenses ($6,094,478) Room Revenue (per occupied room night) $215 Net Operating Income (NOI) $3,281,642 Other Revenue (per occupied room night) $32
Expenses (as a % of operating revenue) 65% Project Value to Investor $36,462,689 Occupancy Rate 80% Less Development Costs ($42,507,499) Residual Land Value ($6,044,810)
Construction Financing Residual Land Value/Acre ($2,417,924) Loan to cost ratio 60%
Interest rate 7%
Loan fees (points) 1%
Loan period (months) 18
Draw dow n factor 65%
Capitalization Rate 8.00%
Developer Profit Spread 1.00%
Required Yield on Cost 9.00%

17.a
Packet Pg. 296
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Appendix C: Residential Pro Formas 73

APPENDIX C: RESIDENTIAL PRO FORMAS
This appendix provides the detailed pro formas for residential developments that were used for the inclusionary feasibility and inclusionary in-lieu analysis provided in this report. This appendix also includes a description of the key assumptions used in the residential pro formas.

Key Assumptions
BAE developed the various modeling inputs and assumptions needed for the financial feasibility analysis based on interviews with residential developers who are active in the local area, data from industry publications and databases, experience with recent development projects in the local area, and other research. Developers vary somewhat in the categorization of various project costs, and therefore may show different cost figures for individual cost items even for projects with similar overall development costs. Any variation in the specific cost items described below would not affect the findings of this analysis provided that the total development costs for the prototype projects are consistent with total development costs for similar projects.

Hard Costs: Hard costs are the costs associated with the physical construction of a building, including all construction materials and labor. This analysis uses a hard cost assumption of $375 per leasable square foot of residential space for the lower-density multifamily rental prototype, $425 per leasable square foot of residential space for the high-density multifamily rental prototype, $475 per leasable square foot of residential space for the condominium prototype, $275 per square foot of residential space for the townhome prototype, and $250 per square foot of residential space for the single-family prototype.

Parking Costs: BAE included parking as a separate cost item in order to estimate the specific cost of building parking in these projects. Based on stakeholder interviews, BAE estimates the cost of a podium parking space at $55,000 per space. For prototypes including surface parking, BAE assumes a cost of $5,000 per surface parking space.

Soft Costs: This analysis assumes that soft costs are equal to between 12.5 and 17 percent of hard costs. This soft cost estimate includes engineering, architecture, financing, and CEQA costs, as well as City cost-recovery fees for planning, permitting, and entitlements, but does not include impact fees. Impact fees are included as a separate line item, discussed below.

Impact Fees: BAE calculated impact fees for each prototype based on the City’s impact fee schedule, including park in-lieu fees, storm drain area fees, and roadway maintenance fees.

17.a
Packet Pg. 297
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Appendix C: Residential Pro Formas 74

Market-Rate Residential Rents: This analysis assumes that rental rates for market-rate units for the lower-density apartments will average approximately $4.30 per net residential square foot, with some variation in rent per square foot based on unit size. Assuming slightly higher rents for the high-density prototype, BAE estimates rents are equal to $4.55 per square foot, with some variation between units. These assumption is based on information provided by developers that were interviewed as part of this study as well as data from Costar on current multifamily rental rates in the Campbell area.

Affordable Residential Rents: The affordable rental rates used in this analysis are based on income limits for households at each income level, as published by HCD, assuming an affordable rent equal to 30 of the total household income. The HCD rent limits were adjusted based on an estimated utility allowance to ensure that the combined cost of rent and utilities was no higher than the rent limit.

Market-Rate Residential Sale Prices: This analysis assumes that sale prices for market- rate units will average approximately $900 per net residential square foot for condominiums, $950 per residential square foot for townhomes, and $1,000 per square foot for single-family homes. This assumption is based on information provided by developers that were interviewed as part of this study as well as data from Redfin on sale prices among recently-sold condominiums and townhouses in Campbell.

Affordable Residential Sale Prices: The affordable sale prices used in this analysis are based on the published City of Campbell below-market rate sale prices.

Residential Rental Operating Expenses: This analysis uses an estimate of $15,000 per unit per year for all residential rental units.

Developer Fee: To cover staff overhead and other internal project costs, developers include a one-time developer fee, which is estimated as a percentage of both hard and soft costs. Based on interviews, the fee typically amounts to roughly four percent of hard and soft costs.

Yield on Cost (rental prototypes): In order to meet developer and investor return thresholds, BAE assumes the project must reach a 5.5 percent Yield on Cost (YOC). This is roughly 75 basis points above the current capitalization rate. While this is a relatively small spread between the capitalization rate and the YOC, developers noted a willingness to proceed with projects yielding a 5.5 percent YOC due to the perceived strength of the Santa Clara County rental market.

Developer Profit Margin (for sale prototypes): This metric divides total developer profit by total development cost, to judge overall project feasibility. It can be considered as a

17.a
Packet Pg. 298
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Appendix C: Residential Pro Formas 75

simple profit margin, irrespective of how a project is financed between debt and equity.

Real estate development has higher risk inherent to many other types of investment activity, such as corporate bonds, so developers tend to seek higher profit threshold on real estate projects than these other investment options as a requirement for deciding whether to pursue a project. This study assumes an 18 percent profit threshold for the for- sale prototypes.

Residual Land Value Threshold: This analysis uses a land cost of approximately $3 million to $10 million per acre to assess the financial feasibility of each of the prototypes. The land costs vary by prototype in the City, with the single-family prototypes paying the highest in land costs due to the high sale prices of new single-family units. The land costs for the other prototypes tend to fall within the lower end of the range identified. This is generally consistent with input from the development community, however developers did note that site conditions and location greatly influence the site costs.

17.a
Packet Pg. 299
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Appendix C: Residential Pro Formas 76

Table C-1: Low-Density Multifamily Rental Prototype Pro Forma, Inclusionary Scenario

Sources: BAE, 2023.

Development Program Assumptions Cost Assumptions Development Cost Analysis Site Size - acres / square feet Construction Mixed-Income Development Total Units 59 Site Prep Costs (per site. sq.ft) Affordable Market Rate Total Project Affordable (% - count) 15% Hard Cost per net residential sf Market Rate (% - count) 85% Parking cost per space, Surface Site Preparation $244,640 $1,497,760 $1,742,400 Leasable sq.ft. Soft Costs (% of hard costs)
Total Project sq.ft Impact Fees (per unit) (a) Vertical Construction Total Parking Spaces 89 Inclusionary Housing In-Lieu Fee (per SF) $21.50 Hard Cost $2,606,250 $15,956,250 $18,562,500 Parking spaces per du 1.5 Developer Fee (% of hard and soft) 4% Parking Cost $70,000 $375,000 $445,000 Soft Costs $401,438 $2,449,688 $2,851,125
Base Density Units Impact Fees $205,388 $1,141,045 $1,346,433 Units by AMI Level All Rental Revenue Inclusionary Housing In-Lieu Fee $0 $0 $0 Unit Mix Sq. Ft. 50% 60% 80% MR Units Monthly Rent by AMI Level Subtotal $3,283,076 $19,921,983 $23,205,058 Studio 600 1 1 0 4 6 Unit Type 50% 60% 80% MR
1-BR 750 2 3 0 27 32 Studio $1,419 $1,714 $2,304 $2,940 Construction Financing 2-BR 1,000 1 1 0 16 18 1-BR $1,514 $1,830 $2,462 $3,300 Const. Loan Fees $22,930 $139,228 $162,158 3-BR 1,300 0 0 0 3 3 2-BR $1,806 $2,185 $2,944 $4,000 Const. Loan Interest $223,569 $1,357,476 $1,581,045 All Units 4 5 0 50 59 3-BR $2,079 $2,517 $3,394 $4,940
Developer Fee $141,109 $856,790 $997,898
Summary Market-Rate Total Operating Costs
Number of Units (# - %) 9 15% 50 85% 59 Annual op. cost - per Affordable du $15,000 Total Dev. Cost (excl. Land) $3,915,323 $23,773,237 $27,688,560 Avg. Affordability (% AMI) 56% n.a. Annual op. cost - per Market Rate du $15,000 Per Unit $435,036 $475,465 $469,298 Leasable Sq. Ft. 49,500 Vacancy Rate, Residential 5.0% Per Net SF $563 $559 $559 Total Sq. Ft. 59,400 Market Rate Cap Rate 4.75% Per Gross SF $469 $466 $466 Parking Spaces 14 75 89 Required Yield-on-Cost 5.50%
Feasibility Analysis
Financing
Construction-Period Mixed-Income Development
MR Loan-to-Cost 65% Affordable Market Rate Total Project Loan Fees 1% Project Income
Drawdown Factor 65% Gross Scheduled Rents $187,704 $2,156,160 $2,343,864 Interest rate 7.50% Less Vacancy ($9,385) ($107,808) ($117,193) Loan Term (months) 24 Less Operating Expenses ($135,000) ($750,000) ($885,000) Net Operating Income $43,319 $1,298,352 $1,341,671
Feasibility
Total Development Costs (ex. Land) $3,915,323 $23,773,237 $27,688,560 Per Unit (ex. Land) $435,036 $475,465 $469,298
Required Yield on Cost 5.50% 5.50% 5.50%
Project Value Net of Dev. Profit $787,615 $23,606,400 $24,394,015 Residual Land Value ($3,127,709) ($166,837) ($3,294,546) RLV per unit ($347,523) ($3,337) ($55,840)
RLV per Acre ($1,563,854) ($83,418) ($1,647,273)
15%
$5,000
$375
$20
8,340
$22,821

2.00 49,500
6,950
59,400
Affordable
42,550
51,060

17.a
Packet Pg. 300
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary DRAFT Campbell Affordable Housing Nexus Study | Appendix C: Residential Pro Formas 77

Table C-2: High-Density Mixed-Use Rental Prototype Pro Forma, Inclusionary Scenario

Sources: BAE, 2023.

Development Program Assumptions Cost Assumptions Development Cost Analysis Site Size - acres / square feet Construction Mixed-Income Development Total Units 132 Site Prep Costs (per site. sq.ft) Affordable Market Rate Total Project Affordable (% - count) 15% Hard Cost per net sf
Market Rate (% - count) 85% Parking cost per space, Podium Site Preparation $245,309 $1,497,091 $1,742,400 Leasable sq.ft. Soft Costs (% of hard costs)
Total Project sq.ft Impact Fees (per unit) (a) Vertical Construction Total Parking Spaces 132 Inclusionary Housing In-Lieu Fee (per SF) $21.50 Hard Cost $6,885,000 $42,372,500 $49,257,500 Parking spaces per du 1.0 Developer Fee (% of hard and soft) 4% Parking Cost $1,100,000 $6,160,000 $7,260,000 Soft Costs $1,197,750 $7,279,875 $8,477,625
Base Density Units Impact Fees $462,280 $2,588,770 $3,051,050 Units by AMI Level All Rental Revenue Inclusionary Housing In-Lieu Fee $0 $0 $0 Unit Mix Sq. Ft. 50% 60% 80% MR Units Monthly Rent by AMI Level Subtotal $9,645,030 $58,401,145 $68,046,175 Studio 600 1 1 0 11 13 Unit Type 50% 60% 80% MR
1-BR 750 5 7 0 60 72 Studio $1,419 $1,714 $2,304 $3,090 Construction Financing 2-BR 1,000 2 4 0 34 40 1-BR $1,514 $1,830 $2,462 $3,488 Const. Loan Fees $64,287 $389,339 $453,626 3-BR 1,300 0 0 0 7 7 2-BR $1,806 $2,185 $2,944 $4,250 Const. Loan Interest $626,800 $3,796,051 $4,422,851 All Units 8 12 0 112 132 3-BR $2,079 $2,517 $3,394 $5,200 Developer Fee $395,614 $2,395,929 $2,791,543
Summary Market-Rate Total Commercial Rent (NNN) $2.50
Number of Units (# - %) 20 15% 112 85% 132 Total Dev. Cost (excl. Land) $10,977,040 $66,479,555 $77,456,595 Avg. Affordability (% AMI) 56% n.a. Operating Costs Per Unit $548,852 $593,567 $586,792 Leasable Sq. Ft. 110,900 Annual op. cost - per Affordable du $15,000 Per Net SF $678 $702 $698 Total Sq. Ft. 133,080 Annual op. cost - per Market Rate du $15,000 Per Gross SF $565 $585 $561 Parking Spaces 20 112 132 Vacancy Rate, Residential 5.0% Market Rate Cap Rate 4.75% Feasibility Analysis
Ground Floor Commercial Space 5,000 Required Yield-on-Cost 5.50% Mixed-Income Development
Financing Affordable Market Rate Total Project
Construction-Period Project Income
MR Loan-to-Cost 65% Gross Scheduled Rents $430,380 $5,239,680 $5,670,060 Loan Fees 1% Less Vacancy ($21,519) ($261,984) ($283,503) Drawdown Factor 65% Less Operating Expenses ($300,000) ($1,680,000) ($1,980,000) Interest rate 7.50% Net Operating Income $108,861 $3,297,696 $3,406,557 Loan Term (months) 24
Feasibility
Total Development Costs (ex. Land) $10,977,040 $66,479,555 $77,456,595 Per Unit (ex. Land) $548,852 $593,567 $586,792
Required Yield on Cost 5.50% 5.50% 5.50%
Project Value Net of Dev. Profit $1,979,291 $59,958,109 $61,937,400 Residual Land Value ($8,997,749) ($6,521,445) ($15,519,195) RLV per unit ($449,887) ($58,227) ($117,570)
RLV per Acre ($4,498,875) ($3,260,723) ($7,759,597)
$23,114
Affordable
16,200 94,700

2.00 $20
$425
$55,000
110,900 15%
113,64019,440
138,080

17.a
Packet Pg. 301
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary DRAFT Campbell Affordable Housing Nexus Study | Appendix C: Residential Pro Formas 78

Table C-3: For-Sale Condominium Prototype Pro Forma, Inclusionary Scenario

Sources: BAE, 2023.

Development Program Assumptions Cost Assumptions Development Cost Analysis Site Size - acres / square feet Construction Mixed-Income Development Total Units 53 Site Prep Costs (per site. sq.ft) $20 Affordable Market Rate Total Project Affordable (% - count) 15% Hard Cost per net residential sf $475 Market Rate (% - count) 85% Parking cost per space, Podium $55,000 Site Preparation $131,502 $739,698 $871,200 Leasable sq.ft. Soft Costs (% of hard costs) 17.5%
Total Project sq.ft Impact Fees (per unit) (a) $23,908 Vertical Construction Total Parking Spaces 53 Inclusionary Housing In-Lieu Fee (per SF) $34.50 Hard Cost $4,560,000 $25,650,000 $30,210,000 Parking spaces per du 1.00 Developer Fee (% of hard and soft) 4% Parking Cost $440,000 $2,475,000 $2,915,000 Soft Costs $875,000 $4,921,875 $5,796,875
Base Density Units Sale Revenue Impact Fees $191,261 $1,075,842 $1,267,103 AMI-Level All Sale Price by AMI Level Inclusionary In-Lieu Fee $0 $0 $0 Unit Mix Sq. Ft. 50% 70% 110% MR Units Unit Type 50% 70% 110% MR Subtotal $6,066,261 $34,122,717 $40,188,978 2-BR 1,200 0 4 4 45 53 2-BR $188,601 $297,056 $512,384 $1,080,000 Construction Financing
Marketing Costs 5.00% Const. Loan Fees $40,285 $226,606 $266,891 Summary Market-Rate Total Const. Loan Interest $392,783 $2,209,406 $2,602,189 Number of Units (# - %) 8 15% 45 85% 53 Financing
Avg. Affordability (% AMI) 90% n.a. Construction-Period Developer Fee $247,911 $1,394,497 $1,642,407 Leasable Sq. Ft. 54,000 63,600 MR Loan-to-Cost 65%
Total Sq. Ft. 64,800 76,320 Loan Fees 1% Total Development Cost $6,878,742 $38,692,923 $45,571,665 Parking Spaces 8 45 53 Drawdown Factor 65% Per Unit $859,843 $859,843 $859,843 Interest rate 7.50% Per Net SF $717 $717 $717
Loan Term (months) 24 Per Gross SF $597 $597 $597
Feasibility Analysis
Mixed-Income Development
Affordable Market Rate Total Project
Project Income
Gross Sale Revenue $3,237,760 $48,600,000 $51,837,760
Less Marketing Costs ($161,888) ($2,430,000) ($2,591,888) Net Sales Revenue $3,075,872 $46,170,000 $49,245,872
Total Development Costs (ex. Land) $6,878,742 $38,692,923 $45,571,665 Per Unit (ex. Land) $859,843 $859,843 $859,843
Developer Profit Margin (% of Total Cost) 18% 18% 18%
Developer Profit Threshold $1,401,192 $7,881,707 $9,282,900 Residual Land Value ($5,204,062) ($404,630) ($5,608,693) RLV per unit ($650,508) ($8,992) ($105,824)
RLV per Acre ($5,204,062) ($404,630) ($5,608,693)

1.00 63,600
76,320
Affordable
9,600
11,520

17.a
Packet Pg. 302
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary DRAFT Campbell Affordable Housing Nexus Study | Appendix C: Residential Pro Formas 79

Table C-4: For-Sale Townhome Prototype Pro Forma, Inclusionary Scenario

Sources: BAE, 2023.

Development Program Assumptions Cost Assumptions D evelopment Cost Analysis Site Size (acres) 1.00 Construction Mixed-Income Development Total Units 22 Site Prep Costs (per site. sq.ft) Affordable Market Rate Total Project Affordable (% - count) 18% Hard Cost per gross residential sf Market Rate (% - count) 82% Soft Costs (% of hard costs) 13% S ite Preparation $198,000 $891,000 $1,089,000 Leasable sq.ft. Impact Fees (per unit) (a) $32,401
Total Project sq.ft Inclusionary Housing In-Lieu Fee (per SF) $34.50 Vertical Construction Total Parking Spaces 44 Developer Fee (% of hard and soft) 4% Hard Cost $1,980,000 $8,910,000 $10,890,000 Parking spaces per du 2.00 Soft Costs $247,500 $1,113,750 $1,361,250 Impact Fees $129,603 $583,215 $712,819
Base Density Units Sale Revenue Inclusionary Housing In-Lieu Fee $0 $0 $0 AMI-Level All Sale Price by AMI Level Subtotal $2,357,103 $10,606,965 $12,964,069 Unit Mix Sq. Ft. 50% 70% 110% MR Units Unit Type 50% 70% 110% MR 3-BR 1,800 0 2 2 18 22 3-BR $212,778 $330,841 $573,294 $1,710,000 Construction Financing
Marketing Costs 5.00% Const. Loan Fees $16,608 $74,737 $91,345 Summary Market-Rate Total Const. Loan Interest $161,930 $728,684 $890,613 Number of Units (# - %) 4 18% 18 82% 22 Financing
Avg. Affordability (% AMI) 90% n.a. C onstruction-Period Developer Fee $102,204 $459,919 $562,123 Leasable Sq. Ft. 32,400 39,600 MR Loan-to-Cost 65%
Total Sq. Ft. 32,400 39,600 Loan Fees 1% Total Development Cost $2,835,845 $12,761,304 $15,597,150 Parking Spaces 8 36 44 Drawdown Factor 65% Per Unit $708,961 $708,961 $708,961 Interest rate 7.50% Per Net SF $394 $394 $394
Loan Term (months) 24 Per Gross SF $394 $394 $394
Feasibility Analysis
Mixed-Income Development
Affordable Market Rate Total Project
Project Income
Gross Sale Revenue $1,808,270 $30,780,000 $32,588,270
Less Marketing Costs ($90,414) ($1,539,000) ($1,629,414) Net Sales Revenue $1,717,857 $29,241,000 $30,958,857
Total Development Costs (ex. Land) $2,835,845 $12,761,304 $15,597,150 Per Unit (ex. Land) $708,961 $708,961 $708,961
Developer Profit Margin (% of Total Cost) 18% 18% 18%
Developer Profit Threshold $682,270 $3,070,217 $3,752,487 Residual Land Value ($1,800,259) $13,409,479 $11,609,220 RLV per unit ($450,065) $744,971 $527,692
RLV per Acre ($1,800,259) $13,409,479 $11,609,220
$25
$275
39,600
7,200
39,600
Affordable
7,200

17.a
Packet Pg. 303
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary DRAFT Campbell Affordable Housing Nexus Study | Appendix C: Residential Pro Formas 80

Table C-5: For-Sale Single-Family Subdivision Prototype Pro Forma, Inclusionary Scenario

Sources: BAE, 2023.

Development Program Assumptions Cost Assumptions Development Cost Analysis Site Size (acres) 0.50 Construction Project Total
Total Units 6 Site Prep Costs (per site. sq.ft)
Affordable (% - count) 0% Hard Cost per gross residential sf Site Preparation $544,500 Market Rate (% - count) 100% Soft Costs (% of hard costs) 13% Leasable sq.ft. Impact Fees (per unit) (a) $33,191 Vertical Construction Total Project sq.ft Inclusionary Housing In-Lieu Fee (per SF) $0.00 Hard Cost $3,900,000 Total Parking Spaces 12 Developer Fee (% of hard and soft) 4% S oft Costs $487,500 Parking spaces per du 2.00 Impact Fees $199,147
Inclusionary Housing In-Lieu Fee $0
Base Density Units Sale Revenue Subtotal $4,586,647
AMI-Level All Sale Price by AMI Level
Unit Mix Sq. Ft. 50% 70% 110% MR Units Unit Type 50% 70% 110% MR Const. Loan Fees $33,352 3-BR 2,600 0 0 0 6 6 3-BR $212,778 $330,841 $573,294 $2,600,000 Developer Fee $205,246 Total Development Cost $5,694,932
Marketing Costs 5.00% Per Unit $949,155
Summary Market-Rate Total Per Net SF $365
Number of Units (# - %) 0 0% 6 100% 6 Financing Per Gross SF $365 Avg. Affordability (% AMI) n.a. n.a. Construction-Period Leasable Sq. Ft. 15,600 15,600 MR Loan-to-Cost 65% Feasibility Analysis Total Sq. Ft. 15,600 15,600 Loan Fees 1%
Parking Spaces 0 12 12 Drawdown Factor 65% Project Total Interest rate 7.50% Project Income
Loan Term (months) 24 Gross Sale Revenue $15,600,000
Less Marketing Costs ($780,000)
Net Sales Revenue $14,820,000
Total Development Costs (ex. Land) $5,694,932
Per Unit (ex. Land) $949,155
Developer Profit Margin (% of Total Cost) 18%
Developer Profit Threshold $1,745,088
Residual Land Value $7,379,980
RLV per unit $1,229,997
RLV per Acre $14,759,960
0 $25
$250
15,600
15,600
Affordable
0 17.a
Packet Pg. 304
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary DRAFT Campbell Affordable Housing Nexus Study | Appendix C: Residential Pro Formas 81

Table C-6: For-Sale Single-Family Subdivision Prototype Pro Forma, Seven-Unit Inclusionary Scenario

Source: BAE, 2024.

Development Program Assumptions Cost Assumptions Development Cost Analysis Site Size (acres) 0.58 Construction Affordable Market Rate Project Total Total Units 7 Site Prep Costs (per site. sq.ft)
Affordable (% - count) 14% Hard Cost per gross residential sf Site Preparation $90,750 $544,500 $635,250 Market Rate (% - count) 86% Soft Costs (% of hard costs) 13% Leasable sq.ft. Impact Fees (per unit) (a) $33,191 Vertical Construction Total Project sq.ft Inclusionary Housing In-Lieu Fee (per SF) $0.00 Hard Cost $650,000 $3,900,000 $4,550,000 Total Parking Spaces 14 Developer Fee (% of hard and soft) 4% Soft Costs $81,250 $487,500 $568,750 Parking spaces per du 2.00 Impact Fees $33,191 $199,147 $232,339 Inclusionary Housing In-Lieu Fee $0 $0 $0
Base Density Units Sale Revenue Subtotal $764,441 $4,586,647 $5,351,089 AMI-Level All Sale Price by AMI Level
Unit Mix Sq. Ft. 50% 70% 110% MR Units Unit Type 50% 70% 110% MR Const. Loan Fees $5,559 $33,352 $38,911 3-BR 2,600 0 1.0 0.0 6 7 3-BR $212,778 $330,841 $573,294 $2,600,000 Developer Fee $34,208 $205,246 $239,454 Total Development Cost $949,155 $5,694,932 $6,644,088
Marketing Costs 5.00% Per Unit $949,155 $949,155 $949,155 Summary Market-Rate Total Per Net SF $365 $365 $365
Number of Units (# - %) 1 14% 6 86% 7 Financing Per Gross SF $365 $365 $365 Avg. Affordability (% AMI) 70% n.a. Construction-Period Leasable Sq. Ft. 15,600 18,200 MR Loan-to-Cost 65% Feasibility Analysis Total Sq. Ft. 15,600 18,200 Loan Fees 1%
Parking Spaces 2 12 14 Drawdown Factor 65% Affordable Market Rate Project Total Interest rate 7.50% Project Income
Loan Term (months) 24 Gross Sale Revenue $330,841 $15,600,000 $15,930,841 Less Marketing Costs ($16,542) ($780,000) ($796,542)
Net Sales Revenue $314,299 $14,820,000 $15,134,299
Total Development Costs (ex. Land) $949,155 $5,694,932 $6,644,088 Per Unit (ex. Land) $949,155 $949,155 $949,155
Developer Profit Margin (% of Total Cost) 18% 18% 18%
Developer Profit Threshold $290,848 $1,745,088 $2,035,936 Residual Land Value ($925,704) $7,379,980 $6,454,276
RLV per unit ($925,704) $1,229,997 $922,039
RLV per Acre ($11,108,453) $14,759,960 $11,064,472
2,600
$25
$250
18,200
18,200
Affordable
2,600

17.a
Packet Pg. 305
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary DRAFT Campbell Affordable Housing Nexus Study | Appendix C: Residential Pro Formas 82

Table C-7: Low-Density Multifamily Rental Prototype Pro Forma, Point of Indifference In-Lieu Fee Scenario

Source: BAE, 2024.

Development Program Assumptions Cost Assumptions Development Cost Analysis Site Size - acres / square feet 2. 0 Construction
Total Units 59 Site Prep Costs (per site. sq.ft) Total Project Affordable (% - count) 0% Hard Cost per net residential sf Market Rate (% - count) 100% P arking cost per space, Surface Site Preparation $1,742,400 Leasable sq.ft. Soft Costs (% of hard costs)
Total Project sq.ft Impact Fees (per unit) (a) Vertical Construction Total Parking Spaces 89 Inclusionary Housing In-Lieu Fee (per SF) $55.50 Hard Cost $18,562,500 Parking spaces per du 1.5 Developer Fee (% of hard and soft) 4% Parking Cost $445, 000 Soft Costs $2,851,125
Base Density Units Impact Fees $1,346,433
Units by AMI Level All Rental Revenue Inclusionary Housing In-Lieu Fee $2,747,250 Unit Mix Sq. Ft. 50% 60% 80% 100% MR Units Monthly Rent by AMI Level Subtotal $25,952,308 Studio 600 6 6 Unit Type 50% 60% 80% MR
1-BR 750 32 32 Studio $1,419 $1,714 $2,304 $2,940 Construction Financing 2-BR 1,000 18 18 1-BR $1,514 $1,830 $2,462 $3,300 Const. Loan Fees $180,016 3-BR 1,300 3 3 2-BR $1,806 $2,185 $2,944 $4,000 Const. Loan Interest $1,755,152 All Units 0 0 0 59 59 3-BR $2,079 $2,517 $3,394 $4,940
Developer Fee $1,107,788
Summary Market-Rate Total Operating Costs
Number of Units (# - %) 0 0% 59 100% 59 Annual op. cost - per Affordable du $15,000 Total Dev. Cost (excl. Land) $30,737,664 Avg. Affordability (% AMI) n.a. n.a. Annual op. cost - per Market Rate du $15,000 Per Unit $520,977 Leasable Sq. Ft. 49, 500 Vacancy Rate, Residential 5.0% Per Net SF $621 Total Sq. Ft. 59,400 Market Rate Cap Rate 4.75% Per Gross SF $517 Parking Spaces 0 89 89 Required Yield-on-Cost 5.50%
Feasibility Analysis
Financing
Construction-Period
MR Loan-to-Cost 65% Total Project
Loan Fees 1% Project Income
Drawdown Factor 65% Gross Scheduled Rents $2,520,720
Interest rate 7.50% Less Vacancy ($126,036)
Loan Term (months) 24 Less Operating Expenses ($885,000) Net Operating Income $1,509,684
Feasibility
Total Development Costs (ex. Land) $30,737,664
Per Unit (ex. Land) $520,977
Required Yield on Cost 5.50%
Project Value Net of Dev. Profit $27,448,800
Residual Land Value ($3,288,864)
RLV per unit ($55,743)
RLV per Acre ($1,644,432)

2.00 $20
$375
$5,000
49,500 15%
59,400 $22,821
Affordable
0 49,500
0 59,400

17.a
Packet Pg. 306
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary DRAFT Campbell Affordable Housing Nexus Study | Appendix C: Residential Pro Formas 83

Table C-8: High-Density Mixed-Use Rental Prototype Pro Forma, Point of Indifference In-Lieu Fee Scenario

Source: BAE, 2024.

Development Program Assumptions Cost Assumptions Development Cost Analysis Site Size - acres / square feet 2.0 Construction
Total Units 132 Site Prep Costs (per site. sq.ft) Total Project Affordable (% - count) 0% Hard Cost per net sf
Market Rate (% - count) 100% Parking cost per space, Podium Site Preparation $1,742,400 Leasable sq.ft. Soft Costs (% of hard costs)
Total Project sq.ft Impact Fees (per unit) (a) Vertical Construction Total Parking Spaces 132 Inclusionary Housing In-Lieu Fee (per SF) $63.50 Hard Cost $49,257,500 Parking spaces per du 1.0 Developer Fee (% of hard and soft) 4% Parking Cost $7,260,000 Soft Costs $8,477,625
Base Density Units Impact Fees $3,051,050
Units by AMI Level All Rental Revenue Inclusionary Housing In-Lieu Fee $7,042,150 Unit Mix Sq. Ft. 50% 60% 80% 100% MR Units Monthly Rent by AMI Level Subtotal $75,088,325 Studio 600 13 13 Unit Type 50% 60% 80% MR
1-BR 750 72 72 Studio $1,419 $1,714 $2,304 $3,090 Construction Financing 2-BR 1,000 40 40 1-BR $1,514 $1,830 $2,462 $3,488 Const. Loan Fees $499,400 3-BR 1,300 7 7 2-BR $1,806 $2,185 $2,944 $4,250 Const. Loan Interest $4,869,147 All Units 0 0 0 132 132 3-BR $2,079 $2,517 $3,394 $5,200 Developer Fee $3,073,229
Summary Market-Rate Total Commercial Rent (NNN) $2.50
Number of Units (# - %) 0 0% 132 100% 132 Total Dev. Cost (excl. Land) $85,272,501 Avg. Affordability (% AMI) n.a. n.a. Operating Costs Per Unit $646,004 Leasable Sq. Ft. 110,900 Annual op. cost - per Affordable du $15,000 Per Net SF $769 Total Sq. Ft. 133,080 Annual op. cost - per Market Rate du $15,000 Per Gross SF $641 Parking Spaces 0 132 132 Vacancy Rate, Residential 5.0% Market Rate Cap Rate 4.75% Feasibility Analysis
Ground Floor Commercial Space 5,000 Required Yield-on-Cost 5.50% Financing Total Project
Construction-Period Project Income
MR Loan-to-Cost 65% Gross Scheduled Rents $6,122,040
Loan Fees 1% Less Vacancy ($306,102)
Drawdown Factor 65% Less Operating Expenses ($1,980,000) 1008.182 Interest rate 7.50% Net Operating Income $3,835,938 Loan Term (months) 24
Feasibility
Total Development Costs (ex. Land) $85,272,501
Per Unit (ex. Land) $646,004
Required Yield on Cost 5.50%
Project Value Net of Dev. Profit $69,744,327
Residual Land Value ($15,528,174)
RLV per unit ($117,638)
RLV per Acre ($7,764,087)

2.00 $20
$425
$55,000
110,900 15%
133,080 $23,114
Affordable
0 110,900
0 133,080

17.a
Packet Pg. 307
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary DRAFT Campbell Affordable Housing Nexus Study | Appendix C: Residential Pro Formas 84

Table C-9: For-Sale Condominium Prototype Pro Forma, Point of Indifference In-Lieu Fee Scenario

Source: BAE, 2024.

Development Program Assumptions Cost Assumptions Development Cost Analysis Site Size - acres / square feet Construction
Total Units 53 Site Prep Costs (per site. sq.ft) $20 Total Project Affordable (% - count) 0% Hard Cost per net residential sf $475 Market Rate (% - count) 100% Parking cost per space, Podium $55,000 Site Preparation $871,200 Leasable sq.ft. Soft Costs (% of hard costs) 17.5%
Total Project sq.ft Impact Fees (per unit) (a) $23,908 Vertical Construction Total Parking Spaces 53 Inclusionary Housing In-Lieu Fee (per SF) $61.50 Hard Cost $30,210,000 Parking spaces per du 1.00 Developer Fee (% of hard and soft) 4% Parking Cost $2,915,000 Soft Costs $5,796,875
Base Density Units Sale Revenue Impact Fees $1,267,103
AMI-Level All Sale Price by AMI Level Inclusionary In-Lieu Fee $3,911,400 Unit Mix Sq. Ft. 50% 70% 110% MR Units Unit Type 50% 70% 110% MR Subtotal $44,100,378 2-BR 1,200 53 53 2-BR $188,601 $297,056 $512,384 $1,080,000 Construction Financing
Marketing Costs 5.00% Const. Loan Fees $292,315
Summary Market-Rate Total Const. Loan Interest $2,850,074 Number of Units (# - %) 0 0% 53 100% 53 Financing
Avg. Affordability (% AMI) n.a. n.a. Construction-Period Developer Fee $1,798,863 Leasable Sq. Ft. 63,600 63,600 MR Loan-to-Cost 65%
Total Sq. Ft. 76,320 76,320 Loan Fees 1% Total Development Cost $49,912,830 Parking Spaces 0 53 53 Drawdown Factor 65% Per Unit $941,752 Interest rate 7.50% Per Net SF $785
Loan Term (months) 24 Per Gross SF $654
Feasibility Analysis
Total Project
Project Income
Gross Sale Revenue $57,240,000
Less Marketing Costs ($2,862,000)
Net Sales Revenue $54,378,000
Total Development Costs (ex. Land) $49,912,830
Per Unit (ex. Land) $941,752
Developer Profit Margin (% of Total Cost) 18%
Developer Profit Threshold $10,064,309
Residual Land Value ($5,599,139)
RLV per unit ($105,644)
RLV per Acre ($5,599,139)

1.00 63,600
76,320
Affordable
0 0

17.a
Packet Pg. 308
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary DRAFT Campbell Affordable Housing Nexus Study | Appendix C: Residential Pro Formas 85

Table C-10: For-Sale Townhome Prototype Pro Forma, Point of Indifference In-Lieu Fee Scenario

Source: BAE, 2024.

Development Program Assumptions Cost Assumptions Development Cost Analysis Site Size (acres) 1. 00 Construction
Total Units 22 Site Prep Costs (per site. sq.ft) Total Project Affordable (% - count) 0% Hard Cost per gross residential sf Market Rate (% - count) 100% Soft Costs (% of hard costs) 13% Site Preparation $1, 089,000 Leasable sq.ft. Impact Fees (per unit) (a) $32,401
Total Project sq.ft Inclusionary Housing In-Lieu Fee (per SF) $92.00 Vertical Construction Total Parking Spaces 44 Developer Fee (% of hard and soft) 4% Hard Cost $10,890,000 Parking spaces per du 2.00 Soft Costs $1,361,250
Impact Fees $712,819
Base Density Units Sale Revenue Inclusionary Housing In-Lieu Fee $3,643,200 AMI-Level All Sale Price by AMI Level Subtotal $16,607,269 Unit Mix Sq. Ft. 50% 70% 110% MR Units Unit Type 50% 70% 110% MR 3-BR 1,800 22 22 3-BR $212,778 $330,841 $573,294 $1,710,000 Construction Financing
Marketing Costs 5.00% Const. Loan Fees $115,026
Summary Market-Rate Total Const. Loan Interest $1,121,501 Number of Units (# - %) 0 0% 22 100% 22 Financing
Avg. Affordability (% AMI) n.a. n.a. Construction-Period Developer Fee $707, 851 Leasable Sq. Ft. 39,600 39,600 MR Loan-to-Cost 65%
Total Sq. Ft. 39,600 39,600 Loan Fees 1% Total Development Cost $19,640,646 Parking Spaces 0 44 44 Drawdown Factor 65% Per Unit $892,757 Interest rate 7.50% Per Net SF $496
Loan Term (months) 24 Per Gross SF $496
Feasibility Analysis
Total Project
Project Income
Gross Sale Revenue $37,620,000
Less Marketing Costs ($1,881,000)
Net Sales Revenue $35,739,000
Total Development Costs (ex. Land) $19,640,646
Per Unit (ex. Land) $892,757
Developer Profit Margin (% of Total Cost) 18%
Developer Profit Threshold $4,480,316
Residual Land Value $11,618,037
RLV per unit $528,093
RLV per Acre $11,618,037
0 $25
$275
39,600
39,600
Affordable
0 17.a
Packet Pg. 309
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary DRAFT Campbell Affordable Housing Nexus Study | Appendix C: Residential Pro Formas 86

Table C-11: For-Sale Single-Family Subdivision Prototype Pro Forma, Seven-Unit Point of Indifference In-Lieu Fee Scenario

Source: BAE, 2024.

Development Program Assumptions Cost Assumptions Development Cost Analysis Site Size (acres) 0.50 Construction
Total Units 6 Site Prep Costs (per site. sq.ft) Total Project Affordable (% - count) 0% Hard Cost per gross residential sf Market Rate (% - count) 100% Soft Costs (% of hard costs) 13% Site Preparation $544,500 Leasable sq.ft. Impact Fees (per unit) (a) $33,191
Total Project sq.ft Inclusionary Housing In-Lieu Fee (per SF) $98.50 Vertical Construction Total Parking Spaces 12 Developer Fee (% of hard and soft) 4% Hard Cost $3,900,000 Parking spaces per du 2.00 Soft Costs $487,500
Impact Fees $199,147
Base Density Units Sale Revenue Inclusionary Housing In-Lieu Fee $1,536,600 AMI-Level All Sale Price by AMI Level Subtotal $6,123,247 Unit Mix Sq. Ft. 50% 70% 110% MR Units Unit Type 50% 70% 110% MR 3-BR 2,600 0 0 0 6 6 3-BR $212,778 $330,841 $573,294 $2,600,000 Construction Financing
Marketing Costs 5.00% Const. Loan Fees $43,340
Summary Market-Rate Total Const. Loan Interest $422,568 Number of Units (# - %) 0 0% 6 100% 6 Financing
Avg. Affordability (% AMI) n.a. n.a. Construction-Period Developer Fee $266,710 Leasable Sq. Ft. 15,600 15,600 MR Loan-to-Cost 65%
Total Sq. Ft. 15,600 15,600 Loan Fees 1% Total Development Cost $7,400,366 Parking Spaces 0 12 12 Drawdown Factor 65% Per Unit $1,233,394 Interest rate 7.50% Per Net SF $474
Loan Term (months) 24 Per Gross SF $474
Feasibility Analysis
Total Project
Project Income
Gross Sale Revenue $15,600,000
Less Marketing Costs ($780,000)
Net Sales Revenue $14,820,000
Total Development Costs (ex. Land) $7,400,366
Per Unit (ex. Land) $1,233,394
Developer Profit Margin (% of Total Cost) 18%
Developer Profit Threshold $2,052,066
Residual Land Value $5,367,568
RLV per unit $894,595
RLV per Acre $10,735,136
0 $25
$250
15,600
15,600
Affordable
0 17.a
Packet Pg. 310
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary DRAFT Campbell Affordable Housing Nexus Study | Appendix C: Residential Pro Formas 87

Table C-12: For-Sale Townhome Prototype Pro Forma, Six-Unit Project, $60 per Sq. Ft. Fee Scenario

Source: BAE, 2024.

Development Program Assumptions Cost Assumptions Development Cost Analysis Site Size (acres) 0.27 Construction Project Total
Total Units 6 Site Prep Costs (per site. sq.ft)
Affordable (% - count) 0% Hard Cost per gross residential sf Site Preparation $297,000 Market Rate (% - count) 100% Soft Costs (% of hard costs) 13% Leasable sq.ft. Impact Fees (per unit) (a) $32,401 Vertical Construction Total Project sq.ft Inclusionary Housing In-Lieu Fee (per SF) $60.00 Hard Cost $2,970,000 Total Parking Spaces 12 Developer Fee (% of hard and soft) 4% Soft Costs $371,250 Parking spaces per du 2.00 Impact Fees $194,405
Inclusionary Housing In-Lieu Fee $648,000
Base Density Units Sale Revenue Subtotal $4,183,655
AMI-Level All Sale Price by AMI Level
Unit Mix Sq. Ft. 50% 70% 110% MR Units Unit Type 50% 70% 110% MR 3-BR 1,800 0 0 0 6 6 3-BR $212,778 $330,841 $573,294 $1,710,000 Const. Loan Fees $29,124
Marketing Costs 5.00% Const. Loan Interest $283,962
Summary Market-Rate Total
Number of Units (# - %) 0 0% 6 100% 6 Financing Developer Fee $179,226 Avg. Affordability (% AMI) n.a. n.a. Construction-Period Leasable Sq. Ft. 10,800 10,800 MR Loan-to-Cost 65% Total Development Cost $4,972,967 Total Sq. Ft. 10,800 10,800 Loan Fees 1% Per Unit $828,828 Parking Spaces 0 12 12 Drawdown Factor 65% Per Net SF $460 Interest rate 7.50% Per Gross SF $460
Loan Term (months) 24
Feasibility Analysis
Project Total
Project Income
Gross Sale Revenue $10,260,000
Less Marketing Costs ($513,000)
Net Sales Revenue $9,747,000
Total Development Costs (ex. Land) $4,972,967
Per Unit (ex. Land) $828,828
Developer Profit Margin (% of Total Cost) 18%
Developer Profit Threshold $1,152,861
Residual Land Value $3,621,172
RLV per unit $603,529
RLV per Acre $13,277,629
0 $25
$275
10,800
10,800
Affordable
0 17.a
Packet Pg. 311
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary DRAFT Campbell Affordable Housing Nexus Study | Appendix C: Residential Pro Formas 88

Table C-13: For-Sale Townhome Prototype Pro Forma, Nine-Unit Project, $60 per Sq. Ft. Fee Scenario

Source: BAE, 2024.

Development Program Assumptions Cost Assumptions Development Cost Analysis Site Size (acres) 0.41 Construction Project Total
Total Units 9 Site Prep Costs (per site. sq.ft)
Affordable (% - count) 0% Hard Cost per gross residential sf Site Preparation $445,500 Market Rate (% - count) 100% Soft Costs (% of hard costs) 13% Leasable sq.ft. Impact Fees (per unit) (a) $32,401 Vertical Construction Total Project sq.ft Inclusionary Housing In-Lieu Fee (per SF) $60.00 Hard Cost $4,455,000 Total Parking Spaces 18 Developer Fee (% of hard and soft) 4% Soft Costs $556,875 Parking spaces per du 2.00 Impact Fees $291,608
Inclusionary Housing In-Lieu Fee $972,000
Base Density Units Sale Revenue Subtotal $6,275,483
AMI-Level All Sale Price by AMI Level
Unit Mix Sq. Ft. 50% 70% 110% MR Units Unit Type 50% 70% 110% MR 3-BR 1,800 0 0 0 9 9 3-BR $212,778 $330,841 $573,294 $1,710,000 Const. Loan Fees $43,686
Marketing Costs 5.00% Const. Loan Interest $425,942
Summary Market-Rate Total
Number of Units (# - %) 0 0% 9 100% 9 Financing Developer Fee $268,839 Avg. Affordability (% AMI) n.a. n.a. Construction-Period Leasable Sq. Ft. 16,200 16,200 MR Loan-to-Cost 65% Total Development Cost $7,459,451 Total Sq. Ft. 16,200 16,200 Loan Fees 1% Per Unit $828,828 Parking Spaces 0 18 18 Drawdown Factor 65% Per Net SF $460 Interest rate 7.50% Per Gross SF $460
Loan Term (months) 24
Feasibility Analysis
Project Total
Project Income
Gross Sale Revenue $15,390,000
Less Marketing Costs ($769,500)
Net Sales Revenue $14,620,500
Total Development Costs (ex. Land) $7,459,451
Per Unit (ex. Land) $828,828
Developer Profit Margin (% of Total Cost) 18%
Developer Profit Threshold $1,729,292
Residual Land Value $5,431,757
RLV per unit $603,529
RLV per Acre $13,277,629
0 $25
$275
16,200
16,200
Affordable
0 17.a
Packet Pg. 312
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary DRAFT Campbell Affordable Housing Nexus Study | Appendix E: Demonstration of Lack of Overlap Between Fees 89

APPENDIX D: OVERVIEW OF IMPLAN
This appendix provides additional clarification of the workings of the IMPLAN input-output model. It provides a step-by-step account of how IMPLAN estimates economic impacts. This section begins with an overview of the data that IMPLAN uses internally and moves forward through the process of how the model estimates the impacts of new commercial and housing projects.

What is IMPLAN?
IMPLAN is an input-output model that estimates the total economic implications of new economic activity within a specified geography. The model uses national industry data and county-level economic data to generate a series of multipliers, which in turn estimate the total economic implications of economic activity.

At the heart of the model is a national input-output dollar flow table called the Social Accounting Matrix (SAM). Unlike other static input-output models, which just measure the purchasing relationships between industry and household sectors, SAM also measures the economic relationships between government, industry, and household sectors, allowing IMPLAN to model transfer payments such as unemployment insurance. Thus, for the specified region, the input-output table accounts for all the dollar flows between the different sectors within the economy.

National Industry Data. The model uses national production functions for 546 sectors to determine how an industry spends its operating receipts to produce its commodities. The model also uses a national matrix to determine the byproducts
10 that each industry generates. To analyze the impacts of household spending, the model treats households as an “industry” to determining their expenditure patterns. IMPLAN couples the national production functions with a variety of county- level economic data to determine the impacts for our example.

County-Level Economic Data. In order to estimate the county-level impacts, IMPLAN combines national industry production functions with county-level economic data. IMPLAN collects data from a variety of economic data sources to generate average output, employment, and productivity for each of the industries in a given county. It also collects data on average prices for all of the goods sold in the local economy. In this analysis, IMPLAN uses economic data for Santa Clara County. IMPLAN gathers data on the types and amount of output that each industry generates within the County. In addition, the IMPLAN model uses county-level data on the prices of goods and household expenditures to determine the consumption functions of regional households and local government, taking into account the availability of each commodity within the specified geography.

10 The byproducts refer to any secondary commodities that the industry creates.

17.a
Packet Pg. 313
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Appendix E: Demonstration of Lack of Overlap Between Fees 90

Multipliers. IMPLAN combines these data to generate a series of SAM-type multipliers for the local economy. The multiplier measures the amount of total economic activity that results from an industry (or household) spending an additional dollar in the local economy. Based on these multipliers, IMPLAN generates a series of tables to show the economic event’s direct, indirect, and induced impacts to gross receipts, or output, within each of the model’s 546 sectors. These outputs have been described above, and also are described here:

 Direct Impacts. Direct impacts refer to the dollar value of economic activity available to circulate through the economy and the jobs associated with that economic activity. In the case of new residential development, the direct impacts are equal to the new households’ discretionary spending. The direct impacts do not include household savings and payments to federal, state, and local taxes, as these payments do not circulate through the economy.

It should be noted that impacts from retail expenditures differ significantly between the total economic value of retail and the amount available to circulate through the local economy.

The nature of retail expenditures accounts for this difference. The model assumes that only the retail markup impacts the local economy, particularly for industries heavily populated with national firms such as gas stations and grocery stores. Since local stores buy goods from wholesalers and manufacturers outside of the area, and corporate profits also leave the local economy, only the retail markup will be available for distribution within the local economy. To the extent that retailers’ headquarters are located within the county or region, the model allocates their portions of the impacts to the local economy.

 Indirect Impacts. The indirect impacts refer to the impact of local industries buying goods and services from other local industries, and to the jobs supported by those purchases. The cycle of spending works its way backward through the supply chain until all money leaks from the local economy, either through imports or by payments to income and taxes. For capital projects this would include payments for construction inputs such as wood, steel, office supplies, and any other non-labor payments that a construction firm would purchase in the building process.

 Induced Impacts. The induced impacts refer to the dollar and employment impacts of household spending by the employees generated by the direct and indirect impacts. In other words, induced impacts result from the household spending of employees of business establishments that the new households patronize (direct) and their suppliers (indirect). The model accounts for local commute patterns in the geography. For example, if 20 percent of construction workers who work in the region live outside of the region, the model will allocate 80 percent of labor’s disposable income into the model to generate induced impact estimates. The model excludes payments to federal and state taxes and savings based on the geography’s average local tax and savings rates. Thus, only the disposable incomes from local workers are included in the model.

17.a
Packet Pg. 314
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code) DRAFT Campbell Affordable Housing Nexus Study | Appendix E: Demonstration of Lack of Overlap Between Fees 91

Specifying the “Event” and Running the Model
Once the model is built for the specified geographies, it is time to specify the “event” that the model will analyze and run the model.

Specifying the “Event.” The “event” refers to the total economic value of industry output that the analyst is considering. For example, in the case of the ongoing economic impacts of a new institutional development such as a school, the “event” would be the operations of a school, including the resulting new jobs and the worker compensation.

Running the Model. Once the event is specified, IMPLAN runs the event through the model to generate the results. By default, IMPLAN applies the local data on average output per worker and compensation per worker to determine the direct impacts. The model then applies the value of the event to the national production functions and runs a number of iterations of this value through the production functions for the local economy to determine the indirect and induced impacts. For each iteration, the model removes expenditures to government, savings, and for goods bought outside of the local economy so that the results only include those dollars that impact the local economy.

Summarizing the Impacts
Once the model is run, IMPLAN generates a series of output tables to show the direct, indirect, and induced impacts within each of the model’s 546 sectors. IMPLAN generates these tables for three types of impacts: employment, output, and value added. The IMPLAN analysis of this study is focused on the employment impacts.
• Employment shows the number of employees needed to support the economic activity in the local economy. It should be noted that for annual impacts of ongoing operations, the employment figure shown represents the amount of employment needed to support that activity for a year. Furthermore, IMPLAN reports the number of jobs based on average output per employee for a given industry within the geography. This is not necessarily the same as the number of full-time positions.
• Output refers to the total economic value of the project in the local economy. • Value Added shows the total income that the event generates in the local economy. This income includes:
o Employee Compensation – total payroll costs, including benefits o Proprietary Income – payments received by self-employed individuals as income o Other Property Type Income – payments for rents, royalties, and dividends o Indirect Business Taxes – excise taxes, property taxes, fees, and sales taxes paid by businesses. These taxes occur during the normal operation of businesses, but do not include taxes on profits or income.

17.a
Packet Pg. 315
Attachment: Draft Resolution adopting Affordable Housing Nexus Study (Nexus Study, Inclusionary Housing Ordinance, Housing Code)

ORDINANCE NO.

BEING AN ORDINANCE OF THE CITY COUNCIL OF THE CITY
OF CAMPBELL AMENDING CHAPTER 21.24 (INCLUSIONARY

HOUSING ORDINANCE) OF T HE CAMPBELL MUNICIPAL
CODE. FILE NO. PLN-2023-85.

WHEREAS, after notification and public hearing, as specified by law and after presentation by the Community Development Director, proponents and opponents, the hearing was closed.

WHEREAS, the subject Ordinance will amend Chapter 21.24 (Inclusionary Housing) of the Campbell Municipal Code.

WHEREAS, housing prices and rents in the City of Campbell have increased at a significantly higher rate than general wages. The lack of affordable housing in Campbell forces many residents to pay a very high percentage of their income for housing or to commute considerable distances, adding to air pollution and traffic congestion in Campbell and throughout Santa Clara County. The lack of affordable housing has made it more difficult to recruit workers from out of the area, in general, espec ially workers in lower-paying jobs, potentially affecting the economic vitality of the Campbell. New housing developments do not, to any appreciable extent, provide housing affordable to lower income households. As a result, there is a severe shortage of lower income housing as evidenced by the following:
a. According to the 2023-2031 Final Regional Housing Needs Allocation (RHNA) Plan for the San Francisco Bay Area, prepared by the Association of Bay Area Governments (ABAG), over half (56%) of the City’s housing need is for very-low, low, and moderate-income households. b. According to the U.S. Census Bureau, American Community Survey 5-Year Data (2015-2019) 44.6% of renters, and 27.4% of homeowners, in Campbell are cost burdened, spending more than 30% of their income on housing.

WHEREAS, State housing policy requires the City to assist in the development of adequate housing to meet the current and future housing needs of Campbell residents.

Under the 6th Cycle Regional Housing Needs Allocation (RHNA), the City is required to plan for the development of 752 very-low, 434 low, and 499 moderate-income units, which together account for 56% of the City's total RHNA obligation. In comparison, the City’s 1,292 above-moderate income units represent only 44% of the City’s RHNA for the 2023- 2031 planning period. Understanding the housing needs of the community, the Inclusionary Ordinance requirement for 15% of all new units to be made affordable is reasonable and appropriate to achieve the City's housing needs and obligations.

17.b
Packet Pg. 316
Attachment: Draft Ordinance amending Chapter 21.24 (Inclusionary Housing Ordinance) (Nexus Study, Inclusionary Housing Ordinance, City Council Ordinance No.

PLN-2023-85 – Amending Chapter 21.24 (Inclusionary Housing Ord.) Page 2 of 4

WHEREAS, the p roposed amendments to Chapter 21.24 (Inclusionary Housing Ordinance) of the Campbell Municipal Code include additional findings in Section

21.24.010 (Purpose and findings.) which are included herein by reference.

WHEREAS, the proposed amendments would be consistent with the 2040 General Plan and 2023-2031 Housing Element of the City of Campbell including, but not limited to, the following:

2040 General Plan

Goal LU -3: Employ creative approaches to providing a range of affordable housing options in Campbell while protecting the character of established neighborhoods.

LU-3.a: Implement the programs in the Housing Element in order to achieve the city’s housing goals.

2023-2031 Housing Element

Program H -1a: Inclusionary Housing Ordinance Implementation:

Amend the Inclusionary Housing Ordinance to offer developers a menu of options for achieving affordability, adjusting the percentage of units required to be affordable depending on the degree of affordability achieved (i.e., moderate- , low-, very low -, and extremely low income).

These amendments could also include:
• Initiating a nexus study to reevaluate increasing the affordable housing in-lieu fee.
• Updating the inclusionary ordinance to require for -sale projects to provide the same allocation of units available to lower-income and very low-income units that is required for rental projects.” • Modifying the In- Lieu Fee threshold to apply only to developments of 5-9 units. Housing developments of 10 or more units would not be allowed to substitute affordable units with in- lieu fees.

WHEREAS, the legislature of the State of California has, in Government Code Sections 65302, 65560 and 65800, conferred upon local governments the authority to adopt regulations designed to promote the public health, safety and general welfare of its citizenry.

WHEREAS, the proposed amendments to Chapter 21.24 (Inclusionary Housing Ordinance) are supported by the Affordable Housing Nexus Study prepared by BAE Urban Economics and dated July 15, 2024 (hereinafter “Affordable Housing Nexus Study”).

17.b
Packet Pg. 317
Attachment: Draft Ordinance amending Chapter 21.24 (Inclusionary Housing Ordinance) (Nexus Study, Inclusionary Housing Ordinance, City Council Ordinance No.

PLN-2023-85 – Amending Chapter 21.24 (Inclusionary Housing Ord.) Page 3 of 4

WHEREAS, the City Council adopted the Affordable Housing Nexus Study as a separate, and prior action, at its meeting of August 20, 2024.

WHEREAS, the review and adoption of the proposed amendments is done in compliance with California Government Code Sections 65853 through 65857, which require a duly noticed public hearing of the Planning Commission whereby the Planning Commission shall provide its written recommendation to the City Council for its consideration.

WHEREAS, adoption of the proposed Ordinance is considered a "project" under Section 15378(a)(1) of the California Environmental Quality Act (CEQA).

WHEREAS, the proposed Ordinance may be found exempt from environmental review under Section 15061(b)(3) of the California Environmental Quality Act (CEQA) in that there is no possibility that the proposed changes to the City’s Municipal Code may have a significant effect on the environment.

WHEREAS, the legislature of the State of California has, in Article XI, Section 7 of the California Constitution, conferred upon local governments the authority to adopt regulations designed to promote the public health, safety, and general welfare of its citizenry.

WHEREAS, the proposed amendments will not be detrimental to the public interest, health, safety, convenience, or general welfare of the city.

WHEREAS, the proposed amendments are internally consistent with other applicable provisions of the Campbell Municipal Code and Zoning Code.

WHEREAS, in consideration of the adoption of the subject Ordinance, the City Council provided due consideration of all evidence presented and provided in the entire administrative record.

THEREFORE, the City Council of the City of Campbell does ordain as follows:

Section 1. Chapter 21.24 ( Inclusionary Housing Ordinance) of the Campbell Municipal Code is hereby amended to read as set forth in Exhibit A -1 with underlining (underlining) indicating new text and strikeouts (strikeouts) indicating deleted text.

Section 2. If any section, sentence, clause, phrase, word, or other provision of this Ordinance is for any reason held to be unconstitutional or otherwise invalid, such holding shall not affect the validity of the remaining sections, sentences, clauses, phrases, words or other provisions of this Ordinance, or the validity of this Ordinance, shall stand notwithstanding the invalidity of any section, sentence, clause, phrase, word or other provision.

17.b
Packet Pg. 318
Attachment: Draft Ordinance amending Chapter 21.24 (Inclusionary Housing Ordinance) (Nexus Study, Inclusionary Housing Ordinance, City Council Ordinance No.

PLN-2023-85 – Amending Chapter 21.24 (Inclusionary Housing Ord.) Page 4 of 4

Section 3. The proposed Ordinance is exempt under Section 15061(b)(3) of the California Environmental Quality Act (CEQA) as there is no possibility that the proposed changes to the City’s Municipal Code may have a significant effect on the environment.

Section 4. The City Council further finds and determines that the proposed Ordinance is consistent with the goals, policies, and actions of the 2040 General Plan and the 2023- 2031 Housing Element.

Section 5. That this Ordinance shall become effective thirty (30) days following its passage and adoption and shall be published, or summary thereof, one time within fifteen (15) days upon passage and adoption in the Metro Silicon Valley, a newspaper of general circulation for the City of Campbell, County of Santa Clara.

PASSED AND ADOPTED this _______ day of ________________, 2024 , by the following roll call vote:

AYES: COUNCILMEMBERS:

NOES: COUNCILMEMBERS:

ABSENT: COUNCILMEMBERS:

ABSTAIN: COUNCILMEMBERS:

APPROVED:

Susan M. Landry, Mayor

ATTEST:

Andrea Sanders, City Clerk

17.b
Packet Pg. 319
Attachment: Draft Ordinance amending Chapter 21.24 (Inclusionary Housing Ordinance) (Nexus Study, Inclusionary Housing Ordinance, Exhibit A-1
Chapter 21.24 INCLUSIONARY HOUSING ORDINANCE

21.24.010 Purpose and findings.

A. The purpose of this Chapter is to enhance the public welfare by establishing policies which facilitate the availability of housing affordable to a broad range of households with varying income levels within the City of Campbell, meet the City’s regional share of housing needs, and implement the goals and objectives of the General Plan and Housing Element.

B. The City Council desires to encourage the development of inclusionary units to be located upon the same site as market rate residential development to provide for integration of lower income households with households in market rate neighborhoods and to disperse Inclusionary Units throughout the City where new residential development occurs.

C. The City's Housing Element recognizes that affordable housing is a critical component to the City's economic and social health. Establishing policies which facilitate the availability of housing affordable to a broad range of households with varying income levels within the City of Campbell is consistent with and will implement the City’s Housing goals, policies, and programs for Affordable Housing which include, but are not limited to, the following:

1. Goal 1: Improve Housing Affordability in Campbell – Encourage the Production of Affordable Housing; and

2. Program H-1a (Inclusionary Housing Ordinance Implementation).

D. Providing affordable housing for new employees in lower income jobs locally (rather than leaving those employees to obtain housing in lower cost areas far from Campbell employment centers and transit corridors) helps minimize housing's contribution to greenhouse gas emissions and locating housing to reduce vehicle miles traveled and auto dependency. If the increased demand for affordable housing is not addressed within Campbell it will cause such housing to be built elsewhere, in areas with lower land values that are far from city employment centers and transit corridors, and the resulting commuting will cause increased traffic and transit demands and consequent noise and air pollution.

E. If the increased demand for affordable housing is not addressed within Campbell it may also impact economic growth in that businesses within the city may find it more difficult to attract and retain the variety of workers that they need.

F. Establishing policies which facilitate the availability of housing affordable to a broad range of households with varying income levels also implements policies of the State of California to: (1) provide sufficient capacity for new housing affordable at all income levels necessary to accommodate the State's future economic growth; and (2) by providing housing for lower income workers, long commutes from less expensive housing markets can be avoided and thus contribute to the implementing the Global Warming Solutions Act of 2006 and the Sustainable Communities and Climate Protection Act of 2008.

G. State housing policy requires the City to assist in the development of adequate housing to meet the needs of lower income households. There is a significant shortage of housing affordable to lower income households, which will only increase as the finite number of residentially zoned parcels within the city are purchased and developed for market rate residential developments.

This loss of residential land available for affordable housing is another impact of market rate residential development.

H. The requirements of this Chapter are based on a number of factors including, but not limited to, the City's long-standing commitment to economic diversity; the serious need for affordable housing as reflected in local and State housing laws, regulations, and policies; the demand for affordable housing created by the development of market rate housing; and the impact that the lack of affordable housing production has on the health, safety, and welfare of the City's residents including its impacts on traffic, transit and related air quality impacts, and the demands placed on

17.b
Packet Pg. 320
Attachment: Draft Ordinance amending Chapter 21.24 (Inclusionary Housing Ordinance) (Nexus Study, Inclusionary Housing Ordinance,

Created: 2022-12-01 08:36:01 [EST]
(Supp. No. 37)