Fairfield Commercial Linkage Fee and Nexus Study.pdf — Fairfield City Council, July 1, 2025

Draft Report
Commercial Linkage
Fee Nexus Study

Prepared for:

City of Fairfield

Prepared by:

Economic & Planning Systems, Inc.

May 23, 2025

EPS #231060
Table of Contents

1. Introduction and Executive Summary ................................................ 1 Background ....................................................................................... 1 Regional Context ................................................................................ 1 Summary of Maximum Nexus-Based Fees and Recommended Fee Levels .... 2 Primary Data Sources .......................................................................... 3 Organization of Report ......................................................................... 4

2. Required Nexus Findings for Fee Program .......................................... 5 Background ....................................................................................... 5 Authority ........................................................................................... 5 Required Nexus Findings ...................................................................... 6 Assembly Bill 602 Provisions ................................................................. 7

3. Methodology and Fee Calculations..................................................... 9 Overview ........................................................................................... 9 Land Use Categories ............................................................................ 9 Estimates of New Worker Households .................................................. 11 Housing Development Costs and Affordability Gap ................................. 15 Fee Calculation ................................................................................. 18 Appendices: ......................................................................................... 24 Appendix A: Survey of Commercial Linkage Fees in Other Jurisdictions ....... 25 Appendix B: Occupation Distribution by Employment Category .................. 27 Appendix C: Assumptions and Sources.................................................... 33

List of Tables
Table 1 Summary of Maximum Allowable Linkage Fees ................................ 2 Table 2 Maximum and Recommended Commercial Linkage Fees ................... 3 Table 3 Solano County Income Category Definitions (2024) .......................... 4 Table 4 Land Use Category Descriptions .................................................. 10 Table 5 Illustration of Employees' Household Income Calculation ................. 12 Table 6 Income Distribution of Worker Households by Employment Category 13 Table 7 Household Generation Rates by Employment Category ................... 14 Table 8 Affordability Gap Analysis (Per Unit) – Rental Product Type ............. 17 Table 9 Fee Calculation – Commercial/Retail/Service ................................. 19 Table 10 Fee Calculation – Office/Medical .................................................. 20 Table 11 Fee Calculation – Industrial: Warehouse/Distribution ...................... 21 Table 12 Fee Calculation – Industrial: Manufacturing ................................... 22 Table 13 Fee Calculation – Lodging ........................................................... 23 Table A- 1 Commercial Fee Comparison of Comparable Jurisdictions ................ 26 Table B- 1 Occupation and Wage Distribution – Commercial / Retail / Services .. 28 Table B- 2 Occupation and Wage Distribution – Office / Medical ...................... 29 Table B- 3 Occupation and Wage Distribution – Industrial: Warehouse / Distribution .............................................................................................. 30 Table B- 4 Occupation and Wage Distribution – Industrial: Manufacturing ......... 31 Table B- 5 Occupation and Wage Distribution - Lodging ................................. 32 Table C- 1 Assumption and Sources ............................................................ 34

Economic & Planning Systems, Inc.
1 1. Introduction and Executive Summary
Background
The City of Fairfield (City) is exploring various tools to address the City’s affordable housing needs, including the potential adoption of a commercial linkage fee program. A commercial linkage fee, also known as a jobs-housing linkage fee, is a type of development impact fee charged to developers of new, nonresidential properties to help support affordable housing for lower-wage workers. The conceptual underpinning of the fee is that new nonresidential development creates new jobs, and some of these jobs will pay wages below what is required for a worker to afford a market-rate housing unit in the city. If the cost to construct new housing units is higher than can be supported by the rents or home prices that workers can afford to pay, the difference is considered an “affordability gap.” The nexus (or reasonable relationship) established between the projected number of lower-wage jobs created by new development, and the subsidy needed to fund this “affordability gap” and support the creation and maintenance of units that are affordable to workers in these jobs is the basis for the fee.

Economic & Planning Systems (EPS) was retained by the City to complete the required nexus analysis that quantifies the relationship between the growth in several nonresidential land uses, including Commercial/Retail/Service, Office/Medical, Industrial (Warehouse and Distribution and Manufacturing), and Lodging, and the demand for and cost of affordable housing for the local workforce.

Assessing an impact fee, such as a linkage fee, based on an established nexus is allowed under the State of California’s Mitigation Fee Act (California Government Code sections 66000 et seq.). As a development impact fee, the commercial linkage fee can only be charged to new developments and must reflect their impact on the need for resources to subsidize new affordable housing. Fee revenue may be collected by the City and used to subsidize the production or preservation of affordable units for lower-income households. Expenditures may include, but are not limited to, direct contributions to affordable housing developers, land acquisition, and funding local match requirements to leverage other funding opportunities.

Regional Context
Commercial linkage fees are common across the state, especially in high-demand, high-cost jurisdictions with strong nonresidential development trends. Fees are typically set well below the nexus-based maximums (which are often expected to render development infeasible), though they still show a large range from as low as $1 per square foot to as high as $40 per square foot of office development in some Bay Area Peninsula jurisdictions. If Fairfield were to adopt a commercial linkage fee program, it would be among several jurisdictions to have active Draft Report Commercial Linkage Fee Nexus Study
2 programs in the North Bay region of the San Francisco Bay Area and the Sacramento Valley region of California. The cities of Vallejo and Vacaville are currently studying affordable housing program fee options, but no commercial linkage fee has yet been adopted by a city in Solano County.

Appendix Table A-1 lists the commercial linkage fee amounts of comparable jurisdictions by land use category. The cities included in the table were prioritized to reflect proximity as well as relative economic similarity to the City of Fairfield.

These comparison points to other communities played an important role in informing the City’s decision on recommended commercial linkage fee levels.

Summary of Maximum Nexus -Based Fees
and Recommended Fee Levels
Table 1 summarizes the maximum justifiable linkage fee by commercial land use category. The methodology used to establish the maximum justifiable fees is described in the subsequent chapters of this report. Please note that the nexus analysis supports these maximum fees but they likely exceed the levels that new commercial developments could feasibly bear. The City can adopt fees up to these maximum levels but will want to consider other economic development and fiscal revenue factors.

Table 1 Summary of Maximum Allowable Linkage Fees

Based on the commercial linkage fees in the other cities shown in Appendix A and the maximum fee levels shown above, the recommendation is for the City to adopt fees well below the maximum. In addition, for economic development reasons, the City does not intend to charge a fee on Office/Medical development.

The resulting recommended commercial linkage fees are shown below in Table 2.

Total Households Total Affordability Gap Maximum Fee
per 100,000
Gross Building sq.ft.
per 100,000
Gross Building sq.ft.
per Gross Building
sq.ft.

Commercial / Retail / Service 76 $10,433,671 $104. 34
Office/Medical 45 $2,234,073 $22.34
Industrial: Warehouse and Distribution 25 $3,071,685 $30.72 Industrial: Manufacturing 48 $1,717,926 $17.18
Lodging 33 $2,618,434 $26.18
Analysis by Economic & Planning Systems, Inc.

Land Use Category
Economic & Planning Systems, Inc.
3 Table 2 Maximum and Recommended Commercial Linkage Fees

Primary Data Sources
To estimate the commercial linkage fees by land use category, EPS relied on numerous sources of data, including:
• JobsEQ, a software tool that compiles industry and wage occupation data from a variety of sources, including the U.S. Census Bureau, the U.S. Bureau of Labor Statistics, the U.S. Bureau of Economic Analysis, the National Center of Education Statistics, and others.
• California Department of Housing and Community Development (HCD) annual income limits for Solano County, 2024 (see
Table 3)
• U.S. Census Bureau American Community Survey (ACS) 5-Year Estimates (2018-2022)
• U.S. Census Bureau LEHD Origin-Destination Employment Statistics (LODES, 2021) Maximum Fee Recommended Fee
(per Gross
Building sq.ft.)
(per Gross
Building sq.ft.)
Commercial/ Retail/ Service $104.34 $1.00
Office/ Medical $22.34 $0
Industrial: Warehouse and Distribution $30.72 $1.00
Industrial: Manufacturing $17.18 $1. 00
Lodging $26.18 $1.00
Analysis by Economic & Planning Systems, Inc.

Land Use
Draft Report Commercial Linkage Fee Nexus Study

4 Table 3 Solano County Income Category Definitions (2024)

In addition, EPS sought input from City of Fairfield staff regarding affordability levels and recently developed affordable housing projects. Data from recent developments and land transactions in Solano County were combined with information collected from various market- rate and affordable housing developers to estimate appropriate development cost assumptions for use in Fairfield. These and other data sources are identified on the tables provided throughout this report.

Organization of Report
Following this Introduction and Executive Summary, this study includes the following chapters:
• Chapter 2 summarizes the required nexus findings of the Study. • Chapter 3 describes the technical methodology and provides the fee calculations.

Income Group Standard Definition
1 2 3 4 5 6 7 8
Acutely Low ≤15% AMI $11,900 $13,600 $15,300 $17,000 $18,350 $19,700 $21,100 $22,450 Extremely Low >15% to ≤30% AMI $26,450 $30,200 $34,000 $37,750 $40,800 $43,800 $47,340 $52,720 Very Low >30% to ≤50% AMI $44,050 $50,350 $56,650 $32,900 $67,950 $73,000 $78,000 $83,050 Low >50% to ≤80% AMI $70,450 $80,500 $90,550 $100,650 $108,700 $116,750 $124,850 $132,850 Median 100% AMI $79,250 $90,550 $101,900 $113,200 $122,250 $131,300 $140,350 $149,400 Moderate >80% AMI to ≤120% AMI $95,100 $108,700 $122,250 $135,850 $146,700 $157,600 $168,450 $179,300 Source: CA Dept. of Housing and Community Development
Number of Persons in Household
Economic & Planning Systems, Inc.

5 2. Required Nexus Findings for Fee
Program
This section provides the nexus findings required under the Mitigation Fee Act for the establishment of a development impact fee.

Background
The City of Fairfield has never adopted an affordable housing impact fee program, including inclusionary zoning (IZ) or commercial linkage fees. The City is addressing several changes to its housing supply, housing needs, and broader economic and real estate trends as part of objectives indicated in its 6th Cycle (2023-2031) Housing Element, which includes exploring financing mechanisms to facilitate affordable housing development in Fairfield. In line with this, the City retained EPS to explore the options for a new affordable housing impact fee on new nonresidential development.

Authority
This study serves as the legal basis for requiring development impact fees under AB 1600 legislation as codified by the Mitigation Fee Act (California Government Code sections 66000 et seq.), which sets forth the procedural requirements for establishing and collecting development impact fees. The law requires that a reasonable relationship, or nexus, must exist between the fee use and type of impact (i.e., development project) that the fee is being used to mitigate.

In 1991, the Ninth Circuit U.S. Court of Appeals upheld the City of Sacramento’s nonresidential linkage fee.1 In that case, the court found that the City of Sacramento’s fee program “substantially advanced a legitimate interest.” EPS is using a similar methodology to the nexus study reviewed in that case to inform this analysis.

1 Commercial Builders of Northern California v. City of Sacramento, 941 F2d 872 (1991).

Draft Report Commercial Linkage Fee Nexus Study
6 Required Nexus Findings
The Mitigation Fee Act clearly identifies the required nexus findings.

Required Nexus Findings
• Identify the purpose of the fee.
• Identify how the fee is to be used.
• Determine how a reasonable relationship exists between the fee’s use and the type of development project on which the fee is imposed. • Determine how a reasonable relationship exists between the demand for the affordable housing and the type of development project on which the fee is imposed.
• Demonstrate a reasonable relationship between the amount of the fee and the cost of the public benefit attributable to the development on which the fee is imposed.

Purpose of Fee
The fee program established through this nexus study will fund the development and preservation of affordable housing in the city to serve lower-wage workers employed by new nonresidential development.

Use of Fee
The fee will be collected by the City. The funds may be used to assist with the production and/or rehabilitation and preservation of affordable housing units and/or the acquisition of land for affordable housing development in city. The fee may also fund studies and the administration necessary to support the fee program.

Relationship between Use of Fee and Type of Development New commercial development in the city will generate new jobs. Some portion of the workers in those jobs will not earn wages high enough to afford the rents necessary to support new residential development without subsidy. The linkage fee will be used to help fund this subsidy, resulting in the development of residential units affordable to the local workforce.

Relationship between Demand for Affordable Housing and Type of Project
The City and EPS have identified five nonresidential land use categories for which a separate fee has been calculated: Commercial/Retail/Service, Office/Medical, Warehouse and Distribution, Manufacturing, and Lodging. The proportion of lower wage workers and the number of square feet of nonresidential building space per employee for each employment category has been assessed to ensure a proper nexus is established.

Economic & Planning Systems, Inc.
7 Relationship between Amount of Fee and Cost of Public Benefit Attributed to New Development
EPS estimated the difference between the cost to build a new multifamily rental housing project in Fairfield and its valuation based on the rents affordable to workers in Solano County at wages typical of businesses in the nonresidential land use categories identified above. The affordable rents yielded unit values below the cost of construction, indicating an “affordability gap.” To estimate the maximum fee for each nonresidential land use, the affordability gap is multiplied by the anticipated number of households generated (by affordable housing income category) per 100,000 square feet of new nonresidential development.

Assembly Bill 602 Provisions
AB 602 was signed into law by the Governor of California in 2021. The legislation added new requirements for impact fees in addition to those already required under AB 1600. While much of the intent of AB 602 was to clarify and limit impact fees applied to residential development, certain aspects of AB 602 may also apply to nonresidential development.

Existing Level of Service
Under Government Code 66016.5, AB 602 requires that an impact fee nexus study “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.”
It is estimated that the City of Fairfield currently has 1,642 affordable housing units for an employment base of 37,393 workers.
2 This represents a ratio of 0.04
affordable units per worker. The maximum linkage fee levels identified herein would allow the City to subsidize a greater number of affordable units per worker – 0.5 per Commercial/Retail/Service worker, 0.2 per Office/Medical worker, 0.5 per Warehouse/Distribution worker, 0.4 per Manufacturing worker, and 0.5 per Lodging worker.3 These higher proportions may be appropriate for addressing local housing needs given the shortfall of affordable units in the city, region, and state, and the demonstrated impacts of new commercial development on the City’s need for affordable housing.

A major public policy effort to address the statewide housing shortage, California’s Regional Housing Needs Allocation (RHNA) process has indicated that Fairfield

2 Affordable unit count is sourced from the City of Fairfield 2023-2031 Housing Element (Chapter 2), certified by HCD in April 2023. Fairfield’s employment base is sourced from the U.S. Census Bureau LEHD LODES (2021).
3 Proportions are calculated as the number of affordable units that could be subsidized by the maximum fee on a 100,000 square foot space (as shown in (Tables 9-12) and then divided by the total number of employees that would work in a given land use category (as shown in Table 7).

Draft Report Commercial Linkage Fee Nexus Study
8 should plan for 3,069 total housing units between 2023 and 2031, including 1,795 units priced for Moderate to Very Low income levels. This target represents a significant increase in the pace of both targeted and actual affordable housing production in recent years and will require a broad array of funding sources. If adopted, the commercial linkage fee program would represent a new source of revenue that City staff can use to advance the City’s affordable housing objectives as well as implement statewide housing goals.

Collection of Fees at Previous Levels
Under Government Code 66016.5, AB 602 requires 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.” The City has not previously adopted a commercial linkage fee nexus study or other affordable housing impact fee program. The City of Fairfield wishes to use the commercial linkage fee program to generate revenue to increase the number of deed-restricted affordable housing units as new workers are added to the local employment base.

Capital Improvement Plan
Under Government Code 66016.5, AB 602 requires that “large jurisdictions shall adopt a capital improvement plan as a part of the nexus study.” Under Government Code 66002, “any local agency which levies a fee subject to Section 66001 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.” Capital improvement plans typically include specific infrastructure projects and public facilities rather than affordable housing developments, and affordable housing is not listed in the statute as the type of “facility” or “improvement” for which a capital improvement plan must be adopted. However, the City has expressed its intent to support the permitting and construction of affordable housing units as specified in the State’s RHNA process, including 1,795 Moderate to Very Low income units. These units may be located in various areas within the City’s boundaries, may range from single units to larger complexes of 100 or more units, and are intended to be permitted or developed by 2031. This nexus study estimates the costs to develop such units, less their value as income-restricted units, which represents the housing production subsidies to be financed with the collected linkage fees.

Economic & Planning Systems, Inc.

9 3. Methodology and Fee Calculations
Overview
This chapter provides the methodology used by EPS to calculate maximum commercial linkage fees for each land use category. For a given land use category, calculating the maximum justifiable fees for new nonresidential development involves the following three distinct steps:

1. New Worker Households by Income Level. Estimating the number of working households (by income level) generated by new nonresidential development. These working households represent a one-to-one correspondence with the number of rental housing units demanded at different affordability levels (i.e., Above Moderate, Moderate, Low, Very Low) by employees of the new nonresidential development.

2. Affordable Housing Funding Gap. Calculating the affordability gaps (i.e., required subsidies) for a typical rental unit built in the local housing market, priced at different affordability levels. This analysis is based on the premise that deed-restricted affordable housing generally does not yield rental revenue sufficient to incentivize development.

3. Maximum Commercial Linkage Fee Calculation. Calculating the total impact fee as a product of (a) the number of rental housing units demanded by working households and (b) the subsidy required to produce a single unit affordable to each working household.

The following sections provide a detailed description of EPS’s methodology and technical analysis.

Land Use Categories
The commercial land uses analyzed in this study are presented in Table 4, along with a description of the types of businesses that are included in each category.

In general, each land use category is intended to be associated with a particular type of building or land use, to which the fees can be applied to new development. The City has asked EPS to evaluate five distinct land use categories, but the City may choose only to adopt fees for some of the land use categories.

While most land use categories are discretely associated with a particular type of building, others may be interchangeable as tenants may shift between building types. This analysis estimates the number of jobs and households generated from new nonresidential development by land use category and household income level. These projections are partly based on conforming the most typical North American Industry Classification System (NAICS) employment industries with the specified land use categories.

Draft Report Commercial Linkage Fee Nexus Study
10 Table 4 Land Use Category Descriptions

Land Use Category Description and Examples NAI CS Sectors Commercial / Retail /
S ervic e
Businesses selling or providing merchandise, entertainment, and personal services to the general public. Examples include grocery stores, drug stores, clothing stores, gener
al merchandise stores, beauty salons, and gas stations. Food and drinking places are also included in this category.
44-45 - Retail Trade
722 - Food Services and Drinking Places
812 -
Personal and Laundry Services
Office / Medical
Includes Office uses, defined as employers engaged in business activity with limited direct access from the general public. Businesses focused on professional, medical, f
inancial, scientific, and technical services; examples include finance, insurance, real estate, law, engineering, medical offices, and science and technology. 51 - Information
52 - Finance and Insurance
53 -
Real Estate and Rental and Leasing
54 - Professional, Scientific, and Technical
Services
55 - Management of Companies and
Enterprises
561 - Administrative and Support Services
6211 - Offices of Physicians
6212 - Offices of Dentists
6213 - Offices of Other Health Practitioners
6214 - Outpatient Care Center
6215 - Medical and Diagnostic Laboratories
Industrial: Warehouse /
Distribution
Businesses engaged in operating warehousing facilities for storing consumer goods. Employers may also provide logistics services, which may include labeling, br
eaking bulk, inventory control and management, light assembly, order entry and fulfillment, packaging, pick and pack, price marking and ticketing, and transportation arrangement.
493 - Warehousing & Storage
Industrial: Manufacturing
Establishments engaged in the transformation of raw materials into new finished or semi-finished products. Examples include plants, factories, and mills; may also i
nclude bakeries, candy stores and custom tailors.
31-33 - Manufacturing
Lodging
Lodging or short-term accommodations for travelers, vacationers, and others in facilities known as hotels, motor hotels, resort hotels, and motels. Does not include s
hort-term rentals.
721 - Accommodation
Analysis by Economic & Planning Systems, Inc.

Economic & Planning Systems, Inc.
11 231060_Fairfield_Commercial_Linkage_Draft_2025.05.23.docx Estimates of New Worker Households
The following section details the methodology for estimating the distribution of household income levels for new worker households in the city, and the number of these households that will be generated by new development in each commercial land use category.

Occupational Category and Wage Distribution
The first step in determining the number of new worker households requiring affordable residential units is to associate each land use type with occupational categories and the resulting distribution of annual wages within those categories.

This estimate included the following analytical steps:
• EPS used data from JobsEQ to calculate the proportion of occupations in NAICS-coded employment industries likely to be represented under each land use category in the Vallejo-Fairfield Metropolitan Statistical Area (MSA), which is coterminous with Solano County and includes the City of Fairfield. For example, EPS evaluated the occupations within the Accommodation (NAICS 721) industry to estimate the proportional distribution of occupations for the Lodging land use category. As shown in Appendix Table B-5, eight percent of jobs in the Lodging land use category are in Management occupations, while 30 percent are in Grounds Cleaning and Maintenance occupations, and so on. The occupational distributions for all land use categories are provided in Appendix B. • Data from JobsEQ also provides the average annual wage for each occupation, which is used to calculate an estimate of the average annual household income by occupation. As detailed in Appendix B, average annual household income by occupation is calculated by multiplying average annual wages by 1.80, the number of employed residents per working household in the city.
4 While there will undoubtedly be some
variation in wages per employee within a household, in the absence of more specific data, this analysis assumes comparable levels of education and training and thus, hourly earnings among all workers in a single household.5
• Income levels (i.e., Above Moderate, Moderate, Low, and Very Low) are then produced for each occupation based on the steps above. Essentially, occupations are “sorted” into one of the four income categories based on the average annual household income for each occupation. This sorting

4 Sourced from the U.S. Census ACS 5-Year Estimates (2022). 5 This assumption is consistent with “Assortative Mating” theory. See National Bureau of Economic Research, “Marry Your Like: Assortative Mating and Income Inequality.” Draft Report Commercial Linkage Fee Nexus Study
12 uses HCD’s income classifications for a 3-person household. For consistency, the affordability gap calculation is based on an average 2- bedroom multi-family unit assuming three occupants.

Table 5 presents an example of how an income category is calculated for a given industry, occupational category, and corresponding average annual income.

Table 5 Illustration of Employees' Household Income Calculation

Distribution of Workers by Land Use Type
After identifying income levels for each occupation category, EPS summed the percentages of the households in each income level across all occupations represented in the land use categories. The resulting distribution of worker households in each income level by land use category are presented in Table 6.

As shown in Table 7, only Commercial/Retail/Service is expected to generate a significant number of households per 100,000 square feet of nonresidential development at very low-income levels. Meanwhile, Office/Medical and Manufacturing are expected to generate more households in the Moderate and Above Moderate Income levels. Lodging and Warehouse and Distribution are expected to generate a relatively small amount of housing for all income categories, due mainly to the small employment densities typical of each industry.

See Appendix B for details regarding the distribution of occupations and wages within each land use type.

Employment Densities
Different land use categories operate with varying levels of employment densities.

A 100,000 square foot industrial development, for example, typically has fewer employees than an office building of the same size. The number of building Item Source Example
Land Use Category City of Vallejo and EPS Office / Medical Industry U.S. BLS, JobsEQ 6211 - Offices of Physicians
Occupation Category U.S. BLS, JobsEQ Healthcare Practitioners and Technical Occupations
Median Annual Wage for the Vallejo-
Fairfield MSA
for Occupation within Industry
U.S. BLS, JobsEQ $155,749
Workers per Household U.S. Census ACS 5-Year Estimates
(2022) 1.80
Median Income per Household Workers per HH Multiplied by Med.

Annual Wage $280,348
Income Category for 3-person Household CA HCD Income Limits Above Moderate Sources: U.S. Bureau of Labor Statistics, U.S. Census Bureau, CA Dept. of Housing and Community Development, JobsEQ; Analysis by Economic & Planning Systems, Inc.
13 231060_Fairfield_Commercial_Linkage_Draft_2025.05.23.docx square feet anticipated for an employee is termed the “employment density” of each land use category.

Based on input from City staff, independent research, and experience with other comparable cities, EPS estimated the employment density for each of the land use categories (detailed in Appendix Table C-1). Using these employment density assumptions, EPS estimated the number of employees that would occupy a prototype 100,000-square foot building for each land use category, also shown in Table 7.

Household Formation
After calculating the estimated number of new employees generated for each land use category, EPS further estimated the number of households represented by these new employees, also detailed in Table 7. To calculate new households, EPS first adjusted the number of workers expected to form new households, accounting for those workers who are typically too young (aged 16 to 19) to form their own households.
6 The resulting adjusted estimate of new workers was divided by 1.80, which represents the number of workers per households in Fairfield.7 Table 6 Income Distribution of Worker Households by Employment Category

6 Data from the U.S. Bureau of Labor Statistics indicate this age cohort represents about 11.8 percent of retail and restaurant employment, but only 3.4 percent of employment in other industries.
7 Based on the U.S. Census Bureau’s ACS 5-Year Estimates (2022): the number of Fairfield residents who are defined as “workers” in households that have earnings.

Very Low Low Moderate Above Moderate
50% AMI 80% AMI 120% AMI >120% AMI
Commercial / Retail / Service 0.0% 88.6% 4.4% 7.0%
Office/Medical 0.0% 13.7% 28.3% 58.0%
Industrial: Warehouse and Distribution 0.0% 75.1% 14.9% 10.0% Industrial: Manufacturing 0.0% 15.3% 51.4% 33.3%
Lodging 0.0% 49.7% 41.4% 8.8%
Income Level
[1] Designation of household income assumes a 3-person household and 1.80 workers per household, based on U.S.

Census Bureau data.

Land Use Category [1]
Sources: U.S. Bureau of Labor Statistics, CA Dept. of Housing and Community Development, JobsEQ; Analysis by Economic & Planning Systems, Inc.

Draft Report Commercial Linkage Fee Nexus Study
14 Table 7 Household Generation Rates by Employment Category

Land Use Very Low Low Moderate Above Moderate
Category 50% AMI 80% AMI 120% AMI >120% AMI
Commercial / Retail / Service 600 167 88.2% 82 0 72 4 6 Office/Medical 500 200 96.6% 107 0 15 30 62
Industrial: Warehouse and Distribution 1,900 53 96.6% 28 0 21 4 3 Industrial: Manufacturing 750 133 96.6% 72 0 11 37 24
Lodging 1,500 67 96.6% 36 0 18 15 3
[2] Assumes 1.80 workers per household, based on U.S. Census data; rounded. [4] Figures are rounded to nearest whole number.

Households by Income Level [4]
[3] This maximum nexus-based fee calculation assumes that the Commercial Linkage Fee accounts for all worker households generated by new employees occupying new nonresidential construction in the City of Fairfield, though some workers and their households may choose to reside outside of Fairfield. Total number of households may not match sum of households by income level due to rounding.

Sources: U.S. Bureau of Labor Statistics, U.S. Census Bureau, CA Dept. of Housing and Community Development, JobsEQ; Analysis by Economic & Planning Systems, Inc. [1] U.S. Bureau of Labor Statistics data indicates that 11.8% of retail/restaurant workers are aged 16-19, but an average of only 3.4% of workers in other industries fall into that age cohort. EPS has assumed that workers aged 16-19 do not form their own households.

Total Workers
per 100k Gross
Building sq.ft.
% of Workers
Forming
Households [1]
Total Households
per 100k Gross
Building sq.ft.
[2],[3]
Gross
Building
sq.ft. per
Worker
Economic & Planning Systems, Inc.
15 Housing Development Costs and
Affordability Gap
To calculate the maximum justifiable fee for each land use category, EPS estimated the “affordability gap” (i.e., required subsidy) related to developing residential units affordable to Very Low, Low, and Moderate income households.8 This analysis estimates the costs of providing affordable housing for a three- person household. California State law (California Health and Safety Code Section 50052.5) assumes that a three-person household would occupy a two-bedroom unit, and this assumption is used in this analysis.

The assumed prototype reflects multifamily construction at 30 dwelling unit per acre with surface parking, reflecting the typical affordable housing developments built in the region as confirmed by interviews with residential developers and consistent with City staff representations of the general type of denser multifamily projects built in Fairfield. This building prototype is relatively cost-effective to construct, as it efficiently uses land and does not involve more expensive construction materials or techniques. Based on comparable recent projects in the vicinity of Fairfield, EPS assumes that the typical gross square footage of a two- bedroom rental unit in Fairfield will be approximately 1,190 square feet.

Development Cost Assumptions
Affordable housing development costs include land costs, direct costs (e.g., labor and materials), and indirect or “soft” costs (e.g., architecture, entitlement, marketing, etc.). Data from recent land transactions in and around Fairfield have been combined with EPS’s information from various market-rate and affordable housing developers in the surrounding region to estimate appropriate development cost assumptions for use in Fairfield. These assumptions are shown on Table 8 and indicate that the total cost per unit for rental apartments in Fairfield is about $455,000. By necessity, this figure represents a “prototypical” project; the actual costs for a given project will vary by location and project design characteristics.

Revenue Assumptions
Assumptions must be made regarding the applicable income level (Very Low, Low, and Moderate) and the percentage of household income spent on housing costs to calculate the values of the affordable units. In addition, translating these assumptions into unit prices and values requires estimates of operating expenses

8 EPS excludes Above Moderate-priced units from this analysis since they would most likely not require a subsidy to produce.

Draft Report Commercial Linkage Fee Nexus Study
16 and capitalization rates. The following assumptions were used in these calculations:
• Income Levels—This analysis estimates the subsidy required to produce units for households falling into the Very Low, Low, and Moderate-income categories for a three-person household. These categories are generally defined as a percentage of area median income (AMI) by HCD. • Percentage of Gross Household Income Available for Housing Costs— HCD standards on overpaying for rent indicate that households should pay no more than 30 percent of their gross income on housing cost.9 For this analysis, EPS has assumed that all households shall spend no more than 30 percent of their gross income on housing costs, including the cost of utilities stated by the Solano County Housing Authority utility allowance schedule. • Operating Costs for Rental Units—This analysis assumes that apartment operators incur annual operating costs of $7,500 per unit for below market rate housing for units affordable to households falling in the Very Low and Low-income categories. EPS has assumed the units for Moderate-income households would have similar operating costs but would be built by for-profit builders and thus also subject to property taxes, increasing their annual operating cost to about $10,000 per unit.

Affordability Gap Results
Table 8 shows the costs and values for developing a rental apartment affordable to various income levels in Fairfield. Across all categories, the cost of constructing the unit is higher than the supportable value of the unit. This discrepancy is considered the “affordability gap,” and is the basis for calculating the subsidies required to provide housing for lower-wage worker households generated by new nonresidential development. The results of the analysis illustrate that rents affordable to households earning Moderate incomes and below cannot support the costs of new construction without subsidy.

9 See HCD standards for Overpayment and Overcrowding, Building Blocks: Housing Needs - Overpayment and Overcrowding (ca.gov)
Economic & Planning Systems, Inc.
17 Table 8 Affordability Gap Analysis (Per Unit) – Rental Product Type

Item
y
Income I ncome Income
50% AMI 80% AMI 120% AMI
Development Program Assumptions
Density/Acre 30 30 30
Gross Unit Size 1,188 1, 188 1,188
Number of Bedrooms 2 2 2
Occupants per 2-bedroom Unit 3 3 3
Parking Spaces/Unit 1.50 1. 50 1.50
Project Development Cost Assumptions (per unit)
Land Acquisition and Site Improvement [1] $47,853 $47, 853 $47,853 Direct Development Costs [2] $302,813 $302, 813 $302,813 Indirect Development Costs [3] $104,563 $104, 563 $104,563 Total Development Costs $455,228 $455, 228 $455,228
Maximum Supported Home Price
Household Income [4] $56,650 $90, 550 $122,250
Income Available for Housing Costs/Year [5] $12,891 $23, 061 $32,571 (less) Operating Expenses per Unit/Year [6] ($7,500) ( $7,500) ($10,000) Net Operating Income $5,391 $15, 561 $22,571
Capitalization Rate [7] 5.0% 5. 0% 5.0%
Total Supportable Unit Value [8] $107,820 $311, 220 $451,420 Affordability Gap $347,408 $144, 008 $3,808
Multifamily Rental Apartments
with Surface Parking
[3] Includes costs for architecture and engineering; project management; appraisal and market study; marketing, commissions, and general administration; financing and charges; insurance; and contingency. [1] Includes land acquisition, site preparation costs, entitlement consultants, and fees/permits. [2] Includes on-site work, offsite work, vertical construction, general requirements, overhead and builder fees. The cost estimate reflects wood-frame construction.

Sources: City of Fairfield, CA HCD, CA TCAC, CoStar Group, Conversations with local residential developers; Analysis by Economic & Planning Systems, Inc.
[8] The total supportable unit value is determined by dividing the net operating income by the capitalization rate. [4] Incomes are based on 2024 HCD Income Limits for three-person households in Solano County. [5] Assumes that no more than 30% of a household's income should be spent on housing-related costs, including the cost of utilities for a 3-person household in Solano County. [6] Operating expenses are based on EPS feasibility studies in the region and state; lower-income units (at or below 80% of AMI) are assumed to be built as non-profit and are, therefore, exempt from property taxes. Property taxes are as
sumed to comprise a share of the operating expenses for the Moderate-income category. [7] The capitalization rate is used to determine the current value of a property based on estimated future operating income, and is typically a measure of estimated operating risk.

Draft Report Commercial Linkage Fee Nexus Study
18 Fee Calculation
Table 9 through Table 13 provide the maximum nonresidential housing fee calculations for each of the five land use categories.

The fee is calculated by the following steps:

1. Estimate the number of new households by income category generated by a prototype 100,000-square foot building in the land use category.

2. Multiply the number of households generated by the per-unit affordability gap (as calculated in Table 8) to determine the level of subsidy required to provide housing in Fairfield for all new worker households.

3. Divide the total affordability gap by 100,000 gross building square feet (the size of the prototype building) to determine a maximum fee per gross building square foot.

The fee calculated in the following tables represents the maximum justifiable linkage fee that the City can charge for each land use category based on the required nexus findings. The City may, however, decide to adopt fees below the maximum justifiable levels based on economic or policy considerations.

Economic & Planning Systems, Inc.
19 Table 9 Fee Calculation – Commercial/Retail/Service