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Steamboat Springs — The Steamboat Springs City Council may have reached its decision, but debate continues in the business community about how much new affordable housing policies will affect local development projects.

On Tuesday, the council approved an inclusionary zoning and linkage fee ordinance that requires developers to either build affordable housing for each new development they undertake or pay significant fees to the city to help fund affordable housing projects.

Linkage fees are based on square footage multiplied by several factors including a "mitigation rate." Developers had argued for a mitigation rate of 5 percent. But the council voted, 4-2, Tuesday for a 5 percent rate for only the first 5,000 square feet of development, with a 10 percent rate thereafter. Developers can meet their mitigation requirements by either providing housing units or paying a linkage fee.

Some institutional developments are exempt from the requirement, such as industrial and nonprofit developments.

"I was hoping we would get a mitigation rate of 5 percent," said Sandy Evans Hall, executive vice president of the Steamboat Springs Chamber Resort Association. "I think it's best to start low and then evaluate."

Mark Halvorson of Snow Country Construction said he is not sure whether to go through with an office building development he had planned in Steamboat as a result of the new requirements. "The fees remain very significant," Halvorson said. "Whether they're deal breakers needs to be evaluated project by project for developers."

Squeezing the middle

Some believe developers can absorb the fees easily. "I think our market is hot enough right now that the fees can be passed on to the consumer and the consumer will pay it," said Ed MacArthur, owner of Native Excavating and a local developer.

But as others point out, this may only be true for those developments targeted at wealthy consumers.

"I think there will be some development that will not go through," Hall said. "I know a lot are going to take a good hard look at it. You can only pass it on if you're in a high-end product with a high-end consumer."

Loui Antonucci, a Realtor and city councilman who voted against the new policies, agreed. Antonucci said businesses such as restaurants might have to increase prices, employ fewer staff members or simply not do business in Steamboat as a result of linkage requirements.

"For the local guy in town, it's a huge issue," Antonucci said. "I think we're hurting people we're trying to help. Business is not going to go up just because fees do."

Antonucci is concerned the percentage cost increase resulting from the new linkage requirements will be less for more expensive developments, since mitigation is based on a building's size, not its cost.

For example, if a developer chooses to pay the linkage fee, rather than provide housing, for a 10,000-square-foot basic office or retail building downtown costing $4.2 million, his cost will increase 4.7 percent. However, a development of the same size, used as a premium office or retail building on the mountain and costing $6.3 million, will only see a cost increase of 3.1 percent. This is according to calculations by the city's planning department.

Building versus fees

With high-end development and affordable housing being encouraged at the same time, some fear the city's new policies could result in an erosion of Steamboat's middle class.

"My biggest worry is that in the long term there will be a whole lot of rich people in Steamboat and a whole lot of poor people, with nothing in between," MacArthur said. "I just don't think we'll have any middle class here at all."

MacArthur said this is what has happened in other resorts, such as Aspen, which has similar policies.

"There's always a fine line between keeping the workforce employed and providing housing," Antonucci said. "What you're doing is pretty much assuring that the only jobs available will be service jobs. If you want more than service jobs, you have to encourage business, not discourage it. If we stop or curtail development, that's going to affect a lot of people the City Council didn't think about."

John Eastman, assistant director of planning services, said it should be kept in mind that the policies are flexible. Very often, Eastman said, there may be cost advantages to adding affordable housing units to existing development plans, rather than paying the linkage fee, which includes a 25 percent penalty.

"The thing to make clear is there are a lot of options," Eastman said. "Our least preferred is that someone comes in and writes a check. We'd like to see the units."

A case study

Eastman ran the numbers on a mythical 30,000-square-foot mixed-use development in the downtown area with eight 2,500-square-foot condominiums and five store fronts.

For the commercial space, which would create 14.23 units of employee housing demand, the developer could either mitigate 1.07 of the units or pay a linkage fee of $139,890. For the residential space, the developer would have to provide 1.36 affordable housing units or pay a fee of $104,713 to meet inclusionary zoning requirements. For residential linkage, the developer could either provide 0.128 affordable units or pay the linkage fee of $17,264.

Overall, the hypothetical development would create the need 15.51 employee-housing units, with the developer being required to mitigate 2.558 of those or pay fees totaling $261,867. Other city and county fees and taxes were estimated at $138,582 by Routt County Building Department official Carl Dunham, bringing the total cost of fees and taxes to $400,449 if the developer chose not to provide any affordable housing units.

- To reach Brandon Gee, call 871-4210

or e-mail bgee@steamboatpilot.com