News

City Council approves school fees on an already-dead housing project

A proposed development on Middlefield Road is not expected to move forward, but city officials are still divvying up fees for local schools. Image courtesy City of Mountain View.

After years of planning and careful consideration, Mountain View now has a clear strategy for charging developers fees to pay for much-needed school facilities, ensuring that new residents will have a place to send their kids to school.

And last week, the council got to test-drive that strategy for the first time, using a complex calculation to determine that $1.5 million in funding from a recently approved housing project should go to local school districts. Council members debated how much should be apportioned to the districts, and whether to put restrictions on how the money can be spent.

Trouble is, the housing project isn't actually going to be built. The developer, SummerHill Homes, made clear that its proposal to build a 463-unit housing complex along Middlefield Road no longer pencils out, and has dropped its plans. Numerous factors ranging from high land costs to high fees and affordable housing requirements killed the financial feasibility of the project.

The project, just east of N. Whisman Road, was the first housing proposal approved in the East Whisman area, which was rezoned for housing for the first time last year. The project also set the tenor for the high-density vision for East Whisman, with multiple seven-story buildings that would tower over the existing single-story offices.

The project won unanimous approval from the council in May, but behind the scenes the development was in trouble. The city's preferred mix of apartments, condos and dense townhouses for the site was a far cry from what was originally proposed, and after a while the development simply didn't make economic sense, said Robert Freed, SummerHill's president and CEO.

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"We knew as we got deep into the entitlements that the economics were becoming more challenging. We recognized that and attempted to make changes to the land plan and hold down fees in an effort to make the deal work," Freed said. "Sometimes that just doesn't happen."

The reasons for dumping the landmark housing project are many, Freed said. Condo developments barely make a return on the investment, and Mountain View's newly approved requirement that 25% of new townhouses must be affordable has raised serious questions about whether the city accidentally just quashed all future townhouse development.

"That change has basically eliminated the economic viability of a townhome project in the future," Freed said. "Twenty-five percent is a pretty onerous exaction, and if the goal was to eliminate the production of townhomes in Mountain View, it is very effective."

While the 25% inclusionary requirement exists today, SummerHill's project had a different arrangement and did not meet such requirements. The developer was allowed to shift all of the affordable housing requirements to the apartment component of the project, making 68 of the units affordable, while all the townhomes and condos would be sold at market rate. What's more, the majority of those affordable units were available to moderate-income families, which can be rented out at higher rates than typical below-market-rate units. These unusual accommodations were made, in part, to help the project pencil out.

But if you add in the sky-high construction costs and a significant purchase price for the land, Freed said, the project no longer made sense. Freed said that if blame had to be placed on any one thing, he said SummerHill erred in agreeing to too high of a land price.

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"I'm disappointed that we aren't going to be able to go forward with the project. We risked a lot of money, and we'll just have to lick our wounds and move on."

Splitting the money

With the SummerHill project dead and buried, the Oct. 13 council meeting amounted to a dry run -- a theoretical exercise for council members to figure out a fair way to balance school fees against competing city needs.

Mountain View's primary areas for housing growth -- North Bayshore and East Whisman -- have been zoned for nearly 15,000 new homes, which has raised alarm bells among school officials that there would be no room for a crush of additional students.

With the high costs of land and school construction, city officials estimate that future enrollment growth could cost the Mountain View Whisman School District and the Mountain View-Los Altos High School District a combined $1.1 billion. A complex cost-sharing formula created by city staff compels school districts, the city and developers to all share in the burden of paying for the massive cost of building schools.

For developers in North Bayshore and East Whisman, city staff said the contribution should be between $4.08 and $6.12 per square foot of residential development and $16.50 to $19.80 for offices -- a lopsided fee structure designed to encourage housing growth. These fees are separate from mandatory developer fees set by the state, which have been criticized as inadequate for new school construction.

Adding a wrinkle to the plans, city officials were careful to describe the school fees as "voluntary" at all times, akin to a community benefit. That's because cities are prohibited from requiring school facility mitigation fees that go beyond the state's developer fees, even if they are considered inadequate.

SummerHill agreed to provide $2.5 million in community benefit funding to the city as part of the now-defunct housing proposal, leaving the City Council to decide how much of that ought to be sent straight to the school districts. City staff recommended anywhere from $1.06 million to $1.94 million makes sense based on the newly crafted cost-sharing formula.

Some council members had trouble stomaching the idea of giving away more than three-fourths of the money to schools and leaving little for all of the city's other competing priorities, including transportation upgrades, neighborhood commercial space, parks and affordable housing. Councilman Lucas Ramirez said East Whisman is on the receiving end of a great deal of new development, and residents in the area deserve to have that community benefit money reinvested into neighborhood amenities.

Councilman John McAlister said residents in the Whisman area have been desperate for better infrastructure, and that he preferred a more balanced approach to schools.

"The East Whisman neighborhood has been clamoring, begging (and) requesting that the city spend money in their neighborhood to make it more viable, more financially desirable and bring that neighborhood in as part of the city," McAlister said.

School superintendents and trustees, on the other hand, urged the council to give more money to schools, and said it will be difficult to support a hike in enrollment without an expensive new campus. Mountain View Whisman Superintendent Ayinde Rudolph said East Whisman alone is projected to generate 728 elementary school students and 349 middle school students, which is going to necessitate a school that is hopefully within walking distance of the new development.

Councilwoman Lisa Matichak said it's tough to pit the needs of local schools against every other competing priority in the city, and suggested that the $2.5 million be cut right down the middle -- with $1.25 million each going to the city and the school districts. She later agreed to bring that amount up to $1.5 million, which was approved on a 6-1 vote.

Mayor Margaret Abe-Koga, the lone dissenting vote, said she felt the city should do more to support new schools, noting that Mountain View went to great lengths to help the Los Altos School District build a school in the San Antonio area of the city. That deal allowed developers to build more in East Whisman, which instead puts the strain of enrollment growth on Mountain View Whisman.

"We bent over backwards for the Los Altos School District to help them build a school and the burden has landed on this part of town, and the Mountain View Whisman School District now has to carry the load," she said. "In light of that, I feel very strongly that we support them and provide the most funding we can for them."

Council members took a flexible approach in deciding how the school districts should be allowed to spend the money. Instead of mandating that the money be spent exclusively to create or expand schools that East Whisman students would attend, council members agreed to let the district use funds anywhere that can be indirectly used to create space for East Whisman students.

Even though SummerHill is no longer moving forward with the project, the vote wasn't entirely pointless. City staff said SummerHill's permits are valid for at least another year and a half, and SummerHill could choose to sell the permits to another developer. It also sets a precedent for future projects that involve splitting funding with school districts.

Though SummerHill did not have a representative speak at the meeting, Freed said the city's mounting fees on housing construction were a factor in the feasibility of the project. He said developers are being saddled with paying for an increasing list of amenities, and that park fees in particular are reaching "outrageous" and "misguided" levels in Mountain View.

"Everything is about trade-offs," Freed said. "If we really want to produce an adequate supply of housing in the Bay Area, we can't keep loading everything on it."

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City Council approves school fees on an already-dead housing project

by / Mountain View Voice

Uploaded: Wed, Oct 21, 2020, 1:24 pm

After years of planning and careful consideration, Mountain View now has a clear strategy for charging developers fees to pay for much-needed school facilities, ensuring that new residents will have a place to send their kids to school.

And last week, the council got to test-drive that strategy for the first time, using a complex calculation to determine that $1.5 million in funding from a recently approved housing project should go to local school districts. Council members debated how much should be apportioned to the districts, and whether to put restrictions on how the money can be spent.

Trouble is, the housing project isn't actually going to be built. The developer, SummerHill Homes, made clear that its proposal to build a 463-unit housing complex along Middlefield Road no longer pencils out, and has dropped its plans. Numerous factors ranging from high land costs to high fees and affordable housing requirements killed the financial feasibility of the project.

The project, just east of N. Whisman Road, was the first housing proposal approved in the East Whisman area, which was rezoned for housing for the first time last year. The project also set the tenor for the high-density vision for East Whisman, with multiple seven-story buildings that would tower over the existing single-story offices.

The project won unanimous approval from the council in May, but behind the scenes the development was in trouble. The city's preferred mix of apartments, condos and dense townhouses for the site was a far cry from what was originally proposed, and after a while the development simply didn't make economic sense, said Robert Freed, SummerHill's president and CEO.

"We knew as we got deep into the entitlements that the economics were becoming more challenging. We recognized that and attempted to make changes to the land plan and hold down fees in an effort to make the deal work," Freed said. "Sometimes that just doesn't happen."

The reasons for dumping the landmark housing project are many, Freed said. Condo developments barely make a return on the investment, and Mountain View's newly approved requirement that 25% of new townhouses must be affordable has raised serious questions about whether the city accidentally just quashed all future townhouse development.

"That change has basically eliminated the economic viability of a townhome project in the future," Freed said. "Twenty-five percent is a pretty onerous exaction, and if the goal was to eliminate the production of townhomes in Mountain View, it is very effective."

While the 25% inclusionary requirement exists today, SummerHill's project had a different arrangement and did not meet such requirements. The developer was allowed to shift all of the affordable housing requirements to the apartment component of the project, making 68 of the units affordable, while all the townhomes and condos would be sold at market rate. What's more, the majority of those affordable units were available to moderate-income families, which can be rented out at higher rates than typical below-market-rate units. These unusual accommodations were made, in part, to help the project pencil out.

But if you add in the sky-high construction costs and a significant purchase price for the land, Freed said, the project no longer made sense. Freed said that if blame had to be placed on any one thing, he said SummerHill erred in agreeing to too high of a land price.

"I'm disappointed that we aren't going to be able to go forward with the project. We risked a lot of money, and we'll just have to lick our wounds and move on."

Splitting the money

With the SummerHill project dead and buried, the Oct. 13 council meeting amounted to a dry run -- a theoretical exercise for council members to figure out a fair way to balance school fees against competing city needs.

Mountain View's primary areas for housing growth -- North Bayshore and East Whisman -- have been zoned for nearly 15,000 new homes, which has raised alarm bells among school officials that there would be no room for a crush of additional students.

With the high costs of land and school construction, city officials estimate that future enrollment growth could cost the Mountain View Whisman School District and the Mountain View-Los Altos High School District a combined $1.1 billion. A complex cost-sharing formula created by city staff compels school districts, the city and developers to all share in the burden of paying for the massive cost of building schools.

For developers in North Bayshore and East Whisman, city staff said the contribution should be between $4.08 and $6.12 per square foot of residential development and $16.50 to $19.80 for offices -- a lopsided fee structure designed to encourage housing growth. These fees are separate from mandatory developer fees set by the state, which have been criticized as inadequate for new school construction.

Adding a wrinkle to the plans, city officials were careful to describe the school fees as "voluntary" at all times, akin to a community benefit. That's because cities are prohibited from requiring school facility mitigation fees that go beyond the state's developer fees, even if they are considered inadequate.

SummerHill agreed to provide $2.5 million in community benefit funding to the city as part of the now-defunct housing proposal, leaving the City Council to decide how much of that ought to be sent straight to the school districts. City staff recommended anywhere from $1.06 million to $1.94 million makes sense based on the newly crafted cost-sharing formula.

Some council members had trouble stomaching the idea of giving away more than three-fourths of the money to schools and leaving little for all of the city's other competing priorities, including transportation upgrades, neighborhood commercial space, parks and affordable housing. Councilman Lucas Ramirez said East Whisman is on the receiving end of a great deal of new development, and residents in the area deserve to have that community benefit money reinvested into neighborhood amenities.

Councilman John McAlister said residents in the Whisman area have been desperate for better infrastructure, and that he preferred a more balanced approach to schools.

"The East Whisman neighborhood has been clamoring, begging (and) requesting that the city spend money in their neighborhood to make it more viable, more financially desirable and bring that neighborhood in as part of the city," McAlister said.

School superintendents and trustees, on the other hand, urged the council to give more money to schools, and said it will be difficult to support a hike in enrollment without an expensive new campus. Mountain View Whisman Superintendent Ayinde Rudolph said East Whisman alone is projected to generate 728 elementary school students and 349 middle school students, which is going to necessitate a school that is hopefully within walking distance of the new development.

Councilwoman Lisa Matichak said it's tough to pit the needs of local schools against every other competing priority in the city, and suggested that the $2.5 million be cut right down the middle -- with $1.25 million each going to the city and the school districts. She later agreed to bring that amount up to $1.5 million, which was approved on a 6-1 vote.

Mayor Margaret Abe-Koga, the lone dissenting vote, said she felt the city should do more to support new schools, noting that Mountain View went to great lengths to help the Los Altos School District build a school in the San Antonio area of the city. That deal allowed developers to build more in East Whisman, which instead puts the strain of enrollment growth on Mountain View Whisman.

"We bent over backwards for the Los Altos School District to help them build a school and the burden has landed on this part of town, and the Mountain View Whisman School District now has to carry the load," she said. "In light of that, I feel very strongly that we support them and provide the most funding we can for them."

Council members took a flexible approach in deciding how the school districts should be allowed to spend the money. Instead of mandating that the money be spent exclusively to create or expand schools that East Whisman students would attend, council members agreed to let the district use funds anywhere that can be indirectly used to create space for East Whisman students.

Even though SummerHill is no longer moving forward with the project, the vote wasn't entirely pointless. City staff said SummerHill's permits are valid for at least another year and a half, and SummerHill could choose to sell the permits to another developer. It also sets a precedent for future projects that involve splitting funding with school districts.

Though SummerHill did not have a representative speak at the meeting, Freed said the city's mounting fees on housing construction were a factor in the feasibility of the project. He said developers are being saddled with paying for an increasing list of amenities, and that park fees in particular are reaching "outrageous" and "misguided" levels in Mountain View.

"Everything is about trade-offs," Freed said. "If we really want to produce an adequate supply of housing in the Bay Area, we can't keep loading everything on it."

Comments

Lucas Ramirez
Registered user
Another Mountain View Neighborhood
on Oct 21, 2020 at 1:45 pm
Lucas Ramirez, Another Mountain View Neighborhood
Registered user
on Oct 21, 2020 at 1:45 pm
39 people like this

For the record, this project was not subject to a 25% affordable housing requirement, and none of the ownership units were proposed to be affordable. 15% of the units were required to be below-market-rate, and all of the units were in the rental component of the project. The below-market-rate requirement is described in the staff report, which is available here: Web Link

Lucas Ramirez
Greater San Antonio Area


Dan Waylonis
Registered user
Jackson Park
on Oct 21, 2020 at 2:37 pm
Dan Waylonis, Jackson Park
Registered user
on Oct 21, 2020 at 2:37 pm
12 people like this

Another casualty of a misguided meddling city council. The city should be seeking how to create more housing of all types rather than trying to control the market.


Steven Goldstein
Registered user
Old Mountain View
on Oct 21, 2020 at 2:45 pm
Steven Goldstein, Old Mountain View
Registered user
on Oct 21, 2020 at 2:45 pm
21 people like this

In response to Dan Wylonis you wrote:

“Another casualty of a misguided meddling city council. The city should be seeking how to create more housing of all types rather than trying to control the market.”

WOWO, that is a switch, you always promoted that only the housing projects that resulted in the highest prices was to be built in the City. True you wanted affordable housing to only be built by the City or the Government only. The reality is that the California Association or Realtors and the California Apartment Association has “USED” the city Council to build ONLY the highest “quality” and the highest “priced” housing in the city.

Yes, the reality is that COVID and AB5 is pausing if not killing all of the projects that were “green lighted” by the city. The city believed in FALSE promises and information regarding the property values in Mountain View.

The Commercial Real Estate market is about go through a major correction no matter what.

Here is a great video talking about this problem called “NYC commercial mortgage backed securities are going to crash” found here (Web Link)

The reality is that both Residential and Commercial Real Estate vacancies are eventually going to force a collapse in these securities.

And unfortunately, a lot of pensions have investments in this area, and most local and state taxes are dependent on them.

OMG if you think things are bad now?


Steven Nelson
Registered user
Cuesta Park
on Oct 21, 2020 at 7:14 pm
Steven Nelson, Cuesta Park
Registered user
on Oct 21, 2020 at 7:14 pm
19 people like this

Ah - just SUNSET @ SHORELINE.

Sunset (close) the 1969 special redevelopment district that siphons away Millions of School Tax general property tax revenue PER YEAR. Yes - not just (the temporarily) Share Shoreline (tax revenue) but eliminate the "quasi Redevelopment" agency that causes the MVWSD such a large yearly revenue tax "diversion" into the City coffers. I still hate "stomaching the idea" that a special state law allows this in Perpetuity - when for instance all the property tax revenue from the old Downtown (Castro St.) RDA is now going into the schools General Fund budgets as it should! Sorry - this is a rather obscure and wonkish tax issue!

link to Santa Clara County Tax Rates and Information 2019-2020 / see page G-3
$9,943,075.83 tax increment diversion total (MVWSD, a fraction is returned by the JPA)

Web Link


Steven Nelson
Registered user
Cuesta Park
on Oct 21, 2020 at 7:16 pm
Steven Nelson, Cuesta Park
Registered user
on Oct 21, 2020 at 7:16 pm
18 people like this

Or page H-9. :)


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