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BACKGROUND Established in 1989, and revised most recently in 2003, the Lower Income Housing Fee (LIHF) establishes a fee for new and expanded commercial development and new residential development if the development elects not to provide affordable housing units in a manner set forth in the City Inclusionary Zoning Ordinance. The methodology used to establish the fee is based on assumptions that business development generates the needs for affordable housing as a result of salaries that are inadequate to obtain market rate housing. As such, certain types of businesses, such as hotel/motel, will on average generate a specified need of affordable housing per 100,000 square feet of development. For the benefit streamlining the fee process, the impact from all commercial, industrial and office business types are averaged to create one fee amount, which is currently $2.74 per square foot. In light of the different affordable housing impacts generated from certain business types, Section 17.40 of the Pleasanton Municipal provides that the City Council may reduce the LIHF for a commercial, office or industrial development project when the project developer can demonstrate that the proposed project will generate substantially fewer workers than the assumptions used to establish the fee. As mentioned, part of the Mercedes-Benz of Pleasanton development involves the removal of the Chevys Tex Mex restaurant which, based on City's business license information had between 60 to 70 employees when it was in operation. In addition, Mercedes indicates that due to the installation of an automated car wash, it will reduce the number of staff used for its operation. Based on this situation, Mercedes has the unique situation of both expanding its square footage and significantly reducing the number of employees that could benefit from the LIHF. As a result, the additional square footage will result in significantly fewer employees, which will reduce rather than increase the need for affordable housing. Therefore, staff is recommending the Lower Income Housing Fee be waived for this project. It should be noted that the expansion project will most likely result in increased auto sales and service which will result in increased sales tax revenue for the City. In addition, the City Council may recall that Mercedes-Benz of Pleasanton was planning to relocate to the Staples Ranch development but was unable to do so when Hendrick Automotive decided to stay at its current Pleasanton location. Thus, redevelopment of the current Owens Drive site will allow a valued, productive business to remain in Pleasanton to serve the community and generate sales tax revenues. Submitted by: Fiscal Review: Approved by: r �� 1 Steven Bocian Emily .gner Nelson Fialho Assistant City Manager Director of Finance City Manager Attachments: 1. Chapter 17.40 Lower Income Housing Fees PMC Page 2 of 3