Cotati City Council
Agenda Staff Report
Item type: REGULAR AGENDA (ACTION)
To: City Council
Subject: DISCUSSION ON AFFORDABLE HOUSING IMPACT FEES
Date: May 26, 2026
Written by: Damien O'Bid, City Manager
Recommendation
It is recommended that the City Council receive a report on the affordable housing and linkage impact fee study, consider the options and provide direction to staff on policy options and fees for adoption at a future meeting.
Background
Impact fees are commonly charged on new development to ensure that the impacts created by the new development are mitigated by the development and not by existing residents. On August 12, 2025, the City was the first community in Sonoma County to adopt updated development impact fees (Resolution 2025-46) that fully conform with the latest requirements under State law (AB602). The new development impact fees were updated to be calculated by square foot of conditioned space, making them scalable to the size of the development and easy to understand.
In turn, this makes the cost of development more transparent to potential developers.
However, the affordable housing impact fee and commercial housing linkage fees were not included in the initial impact fee study and were deferred to a later time to reduce the number and types of fees that were being modified simultaneously. These fees are currently calculated through a formula based on valuation that makes the cost of this fee difficult to understand until the developer is close to construction. As currently required by the Cotati Municipal Code, all developments over 9 units must build deed restricted affordable housing, so collection of affordable housing fees only applies to small developments of 9 units or less or larger developments that can round down fractional units. The policy intent is that developments of 9 units or less, which may not be able to absorb the cost of constructing the affordable housing in their development, have a mechanism to ”fee out” through payment of the affordable housing impact fee.
Separately, the City currently charges a Linkage Fee for affordable housing. This fee is tied to non-residential development only and the policy intent is to require that new non-residential development contribute funds for affordable housing.
Analysis/Discussion
Maximum Affordable Housing Impact Fee
To determine the maximum allowable impact fee, the fee study aggregates household income of 100 single family owner households and 100 single family renter households who can afford housing at the market rate. This aggregate income is used as the driver of induced economic effects using the IMPLAN model. This is used to estimate the number of jobs created across income levels, as well as the corresponding number of new households.
Based on real-world cost data for affordable housing construction in Sonoma County, the cost to construct a unit of affordable housing is estimated to cost $822,182 per unit. This is based on the cost of the multi-family Saggio Hills (Healdsburg) and South Park Commons (Santa Rosa) affordable housing projects. Using the ability of rental and for sale households to afford the housing units, the total financing gap is determined (Table 1.11). The financing gap is essentially the total cost to produce the housing less the maximum amount that below market households can afford, using a benchmark 100-unit development. This assumes that renters are only paying 30% of their gross income on housing (rent and utilities) and owners are only paying 35% of their gross income on housing. Based on this, the maximum impact fee was developed as follows:
• Rental: $197 per square foot (SF)
• For sale: $193/SF
For a 902 SF prototype rental unit, this would be a nearly $178,000 impact fee per unit. The corresponding 1,654 SF prototype for-sale unit would have an impact fee over $319,000 per unit.
As this would not be financially viable for any development, it is typical that a lower fee is set by the governing body that will not prevent development but will still further the community’s affordable housing goals.
Affordable Housing Impact Fee Comparison
Based on feedback from the consultant that performed the affordable housing impact fee study, different jurisdictions universally reduce this impact fee but use a variety of methodologies or rationale to set the lower fee. These are most often based on averages of neighboring agencies, but some are flat across size ranges while others increase with larger units. The most common break point is a subdivision-sized development (5 or more units), as defined under the Subdivision Map Act. Smaller ”parcel map“ subdivisions (1-4 units) are often exempt from the affordable housing requirements. Some jurisdictions allow developers to pay fractional fees rather than rounding up when there are partial units.
A summary of neighboring inclusionary ”for sale” programs are provided below, with a more detailed table attached:
Jurisdiction Inclusionary Threshold Affordable Housing Fee American Canyon 1-4 units - no requirement
5 or more units – build 10%,
alt method or pay fee
$3.57/SF
Cloverdale None $0
Cotati 1-9 units - pay fee
10 or more units – build 15%
$2,532 first $125,000 of sales
price + $211 for each $5,000
increment thereafter
Healdsburg 1-4 units – pay fee
5 or more units – build 20%
$10.25-21.33/SF
Fee increases by each 50 SF
Petaluma 1-4 units – no requirement
5 or more units, build 15%,
pay fee or alt method
$10.12/SF
Rohnert Park 0-50 units – pay fee or build
51 or more units, build 15%
$15,434/unit
Fractional units can pay fee
Santa Rosa Varies by location $2.03-10.13/SF
Sebastopol 0-4 units – no requirement
5 or more units, build 15%
$100,872/unit
Fractional units can pay fee
Windsor 0-4 units- no requirement
5 or more units, pay fee or
build 10%
$2,000/unit min
>1,000 SF, add $4.78/SF
increasing up to $6.95/SF by
each 50 SF. Fractional units
pay fee.
For the jurisdictions that allow for alternative methods, they are typically actions that are found to be equivalent or better by the City Council, including actions such as land donation, exchanging affordable housing credits, building second units at an alternative location, extending the term of the deed restriction, changing the mix of affordability or rehabilitating existing housing.
Cotati
In Cotati, as indicated in the table above, most residential construction must include 15% inclusionary housing. Projects with 9 or less units can pay the in-lieu fee. Inclusionary requirements are the same for both ”for-sale“ and rental projects. Unlike most other jurisdictions with a formulaic distribution of income levels, Cotati’s ordinance allows alternative mixes of affordable housing to best meet the City’s Regional Housing Needs Allocation (RHNA) requirement. For alternative methods, developers are allowed to build off-site, donate land, or some combination that is approved by the City Council in an affordable housing plan. The fraction of a unit, if rounded down, can be paid by the in-lieu fee. If rounded up, the developer must build the additional unit. Affordable units are typically deed restricted for a minimum of 55 years. Exceptions to these requirements include affordable housing developments, housing constructed by governmental agencies and reconstruction of housing destroyed by a natural disaster.
Potential Policy Options
There are several potential policy options to consider when determining the affordable housing fee. These include:
• Fee Threshold. The City currently applies the fee to residential developments, up to 9 units, and also uses it for fractional units that are rounded down. There is no distinction between for sale and rental units. Most other neighboring jurisdictions exempt small developments of up to 4 units. Some allow payment of fractional units (without rounding) and some allow payment in lieu of building the units. • Fee Amount and Structure. The City currently uses a formula based on projected sales price, which is difficult to determine by a developer and is no longer compliant with current impact fee requirements. The impact fee study has determined that a maximum of $197/SF for rental units and $193/SF for “for sale“ units. Some jurisdictions apply a flat fee per square foot and some increase the fee per square foot as the units get larger.
While it is important to recover costs created by development, it is also important to be cognizant of the total ”fee load”, such that it doesn’t inadvertently over burden the project and prevent development, resulting in no development with the associated infrastructure improvements and no fee collection.
• Alternative Methods. The City currently allows for land donations and off-site development of units, subject to City Council approval of the housing plan. Other jurisdictions allow for other alternatives, as described above.
Based on the various options and the policy goal of primarily producing inclusionary housing while still collecting in-lieu fees to support impact fee waivers and other housing programs, staff recommend the following for City Council consideration:
• Fee Thresholds. Consider setting different thresholds for rental and for sale development types. Staff have observed that multi-family rental developments under 20 units are generally built by developers that do not have the ability to establish and maintain an affordable housing program and City staff do not have the ability to effectively monitor small numbers of rental units, so the recommendation is to allow payment of the in-lieu fee or alternative methods in these cases.
The most productive housing jurisdiction in recent years is Rohnert Park, with a threshold of 50 units. However, this threshold encourages 100% affordable projects and discourages inclusionary development for all but the largest projects. Projects over 50 units are rare in Cotati, so staff were looking for a balance that would continue to encourage inclusionary development with the smaller projects typical of Cotati and also generate fees for Housing Element programs or fee backfill. Except for Healdsburg, the other jurisdictions included in the study exempt developments under 5 units. This is a policy choice, based on the limited ability of a small development to absorb the cost of the affordable units.
For sale units are typically deeded to the City and transferred to the Housing Land Trust, ensuring effective monitoring post construction without the developer needing to run the program. Therefore, the primary consideration is if the for-sale development has enough market rate units to support the cost of constructing the affordable units. While no change is recommended in the threshold of 9 units on for-sale projects, the City Council could consider allowing for in-lieu payment for fractional units. Under this option, a 10 unit development would build 1 unit and pay for 0.5 units, a 14-unit development would build 2 units and pay for 0.1 units, and so forth. Currently, the City only allows payment for fractional units that round down (less than 0.5). This would still require collection of this fee at all development sizes, but would relieve some of the cost of needing to produce the fractional unit by allowing for fee payment. While this would, in theory, slightly lower the number of affordable units built over time, it would hopefully result in more projects going into construction, therefore producing more units overall and increasing the in-lieu funds collected for affordable housing programs. • Fee Amount. Set the affordable housing impact fee at a lower amount, likely in the $2-7 per square foot range (based on local averages), but with a final recommendation tied to the total fee burden for various residential development types, with the goal of encouraging development. It is not recommended to overly complicate the fee by creating tiers, as the fees will automatically adjust based on conditioned area. Based on feedback from the City Council, staff will return at a future meeting with a fee recommendation based on total fees using different project models. • Alternative Methods. It is recommended that the City Council consider expanding alternative methods to encompass any required program in the adopted Housing Element.
This would still require City Council approval in each case, but would allow for flexibility for programs such as rehabilitation and preservation of units. In this case, the costs of such a program should at least be equal to the cost of providing the units and fees, as prescribed.
Commercial Linkage Fee
The commercial linkage analysis seeks to estimate the workers associated with different types of nonresidential development across the income spectrum. These new workers will need a new home, and some of those new homes will be in the City. Some of those workers will not be able to afford market rate housing, so the commercial linkage fees calculated in the report can mitigate this impact by funding the gap between what the new workers can afford to pay for housing and the market rate cost of housing in Cotati.
Based on this analysis, the following maximum linkage fees were determined:
• Commercial: $81 per square foot
• Office: $83 per square foot
• Industrial: $37 per square foot
The existing linkage fees in Cotati are as follows:
• Commercial/Retail: $4.40 per square foot
• Office: $2.55 per square foot
• Industrial: $2.74 per square foot
Cloverdale, Healdsburg and Windsor do not have linkage fees. American Canyon and Rohnert Park generally charge linkage fees under $1 per square foot across the non-residential categories.
Sebastopol is generally in the $2 per square foot range, Petaluma and Santa Rosa are generally in the $3 per square foot range (except for Petaluma’s $6.19 for retail), with the Town of Sonoma charging $4 per square foot (except for no charge for industrial and $15 for hotels). Based on this review, the limited commercial space available in Cotati, the current struggle in the local retail sector, the goal of leveraging housing to encourage mixed use, as well as general economic development (new jobs and services), it is recommended that the City Council consider eliminating the commercial linkage fee, particularly for commercial and office types where a linkage fee may work against economic development goals. Additionally, in the current economy, these types of uses typically have smaller floor areas, so the linkage fee would need to be relatively high to collect any meaningful amount. While land area is relatively limited in Cotati, industrial developments generally have larger footprints, so a relatively small charge at $1/SF or less, similar to Rohnert Park, may produce a meaningful total fee to contribute to housing goals. The recommended changes would likely reduce future linkage fees collected, although non-residential development has been limited in Cotati in recent history. Ideally, the fee change will encourage commercial development of all types to generate jobs, property and other taxes, creating an overall benefit to the community.
Financial Considerations
The goal of the staff recommendations for City Council consideration is to encourage both market rate and inclusionary housing, while also generating affordable housing fees and allowing for alternative methods to meet the goals of the adopted Housing Element. If properly designed, the fee changes will encourage more housing and will generate more revenue, both for the General Fund and the Inclusionary Housing Fund. If little to no housing is created, the fees won’t be collected, so it’s important to strike the right balance and overall fee burden.
If the City Council decides to eliminate most or all of the Linkage Fees, it would reduce or eliminate this impact fee revenue, depending on the type and degree to which there is new commercial development. However, commercial development will generate jobs, property tax and potentially other taxes, depending on the use type.
Environmental Issues
Where it can be determined with certainty that there is no possibility that the activity in question may have a significant effect on the environment, the activity is not subject to CEQA review.
This general rule can be applied to activities which could be subject to the CEQA process, but which logic dictates should not be subject to CEQA review. Therefore, based on the information provided above, the proposed resolution is exempt from CEQA pursuant to Section 14.03.021 of the CEQA Guidelines in that there is no possibility that the activity may have a significant impact on the environment.