Downtown: $1.3M and Counting


Officials say ‘fee waiver’ program for new development is worth
the cost
Gilroy – The steel skeleton of an earthquake-safe building has replaced century-old bricks. A few blocks north, the gray cement face has gone up on a three-story mix of apartments and businesses next to the historic Strand Theater. And within the next two years, a string of housing and retail projects will take the place of boarded up store fronts along Monterey Street.

The renaissance of Gilroy’s downtown is well under way, but the wave of new development has not come free. In fact, it has cost the city $1,308,357 in giveaways to private developers, according to figures last tallied in September. Officials are quick to point out, however, that the “fee-waiver” program responsible for releasing developers from thousands of dollars in up-front building costs has helped generate new construction valued at $11,023,775.

“We definitely will be seeing increased property taxes, increased sales revenue, but there’s also that added benefit of having a diverse, thriving community,” said Community Development Director Wendie Rooney, whose department tracks the waived fees.

The program amounts to a subsidy for projects in the downtown corridor along Monterey Street. Instead of requiring developers to pay various “impact fees” to support fire, police, water and other basic services, the city instead covers those costs with money from its $35-million general fund.

A handful of critics such as fire union officials have questioned the fee breaks in light of other demands on the city’s budget, but the majority of officials defend the program for breathing new life into the city’s downtown.

“The hope is that you’re generating enough sales and property tax to pay those incentives back,” City Administrator Jay Baksa said. “Everything beyond that is gravy.”

He added that the city’s fee waiver program has helped spur growth in the absence of a Redevelopment Agency (RDA). Voters in many California locales have established such entities to siphon off tax dollars that otherwise would head to the county or state and to use the money for projects close to home. The RDA in Morgan Hill, for instance, has used tax dollars to finance affordable housing and other projects. Gilroy voters turned down an RDA proposal in recent years for fear of its power to seize private property, but Baksa said the fee waiver program has helped fill the void.

“In our situation, you’re trying to encourage private investment and then the city builds the public infrastructure – the water lines, the streets, etc.,” Baksa explained. “If it hadn’t been for this program, you wouldn’t see anything close to this much investment in the downtown.”

The city has already approved or is now discussing more than two dozen projects, a number of which combine commercial and residential uses.

Residential projects generally involve higher fees than a commercial project, though fees also vary based on the size and location of the development. The two-story Gardner Medical Health Center under construction at Fifth and Monterey streets saved $85,406 in fees. One block north, a three-story project that includes street-level office space and 12 apartments saved $160,372.

Gary Walton, a local developer who trimmed $20,000 on one of his commercial projects through the program, said that “whoever thought of the fee waiver should be given an award. It really helped incentivize the projects for downtown. Part of the role of government is to build community, and there’s no better place to do it than downtown.”

He applauded council members for extending the fee waivers for another year, despite rumblings among some council members that the area had reached a “critical mass” and that the program should be allowed to expire. Mayor Al Pinheiro and other council members eager to stoke interest in redevelopment convinced their colleagues in recent weeks to extend the program through December 2006.

In particular, the mayor hopes the owners of unreinforced masonry buildings, which can crumble during an earthquake, will take advantage of the program.

A growing number of the several dozen URM building owners have received fee breaks in the course of upgrading property or building anew. But others have ignored the city’s fee waiver program while seeking top dollar for their dilapidated buildings on the real estate market.

“There’s nothing wrong with getting a fair value for your property,” Pinheiro said. “But when you price things out of the market, you’re going to hinder the redevelopment in the downtown. On one hand, the city is helping by eliminating fees, but on the other hand people are asking prices that are not making it pencil out. That’s not going to work.”

Pinheiro warned that council will not hesitate to condemn buildings in the event URM building owners fail to take advantage of the fee waivers in the next year.

By the time the fee waiver program expires, officials predict the city could have doled out more than $2 million in exemptions to developers. But they say the investment to revitalize downtown after two decades of decline has a high return – and not just in dollars and cents.

“I believe that as people are seeing what can happen in the downtown, the skeptics of the past are becoming the believers of the future,” Pinheiro said. “That in itself is worth a lot.”